Comprehensive Guide: Basic Knowledge of Stocks for Beginners

The stock market has become a vibrant financial playground in recent years. When production and commercial activities face difficulties, stock investment opens up many profit opportunities and attracts millions of investors to participate. To succeed in this market, new investors (F0) need to equip themselves with solid basic knowledge about stocks. This article will help you understand the rules, key concepts, and effective trading strategies.

What Is Stock? Definition and Types

According to the Securities Law No. 70/2006/QH1, stocks are documents or certificates confirming the legal rights and benefits of the owner regarding assets or the capital of the issuing organization.

Stocks include the following main types:

• Common shares, bonds, fund certificates - the most popular investment tools
• Derivatives securities - contracts based on underlying assets
• Warrants, share purchase rights, deposit certificates - benefit instruments
• Other types of securities as regulated by the state

Shares - The Most Common Investment Tool

Shares are the most well-known securities among investors. They confirm ownership of a part of the issuing company’s or enterprise’s equity. There are two main types:

• Common shares: linked to the company’s business results, dividends are not predetermined
• Preferred shares: including preferred dividends and voting preferred shares

Shares can be issued in paper form (named after the enterprise, with face value, issuance year) or electronically (stored information on computer systems).

Bonds - Debt Instruments

Bonds (debt certificates) confirm the rights of the holder and the debt repayment obligations of the issuing entity (company, organization, or government). Essentially, bonds are borrowing instruments where the issuer commits to pay both principal and interest within a specified period. Bondholders receive fixed interest, regardless of capital utilization results, and have no management rights over the capital.

Fund Certificates - Ownership Rights in Investment Funds

Fund certificates are securities confirming investors’ ownership when contributing capital to a public fund. A public fund is an investment fund that raises capital from many investors to jointly invest in securities or other assets to earn profits. Whenever investing in a public fund, you must purchase fund certificates to confirm your capital contribution.

Derivative Securities - Advanced Trading Instruments

According to Clause 9, Article 4 of the 2019 Securities Law, derivative securities are contracts that specify the rights and obligations of the participating parties. Their value depends on one or more underlying assets (securities, indices…). Types of contracts include: options, futures, and forward contracts.

Characteristics of derivative securities:

• Traded on specialized derivative markets
• No limit on issuance volume
• Settlement at a specified future time
• Profit is calculated daily

Warrants and Share Purchase Rights

Guaranteed warrants are secured securities issued by securities companies, often accompanied by an underlying security code. Investors holding warrants have the right to buy the underlying securities at a predetermined price on the maturity date.

Share purchase rights are securities issued by companies in tranches to prioritize existing shareholders’ rights to buy additional shares at a lower price than the market listing. Each outstanding share comes with a purchase right, and the number of rights varies per tranche.

Deposit Certificates - International Instruments

Deposit certificates are created when a foreign company’s shares are intended for deposit at a depository bank. The deposit bank issues deposit certificates with quantities and prices depending on the ratio between the intended issuance and the number of underlying shares.

Stock Market - Trading Infrastructure

Concept of the Stock Market

The stock market (southern stock exchange) is where investors conduct buying and selling transactions of securities at the trading floor or through brokerage firms. The market is divided into two types:

• Primary market: where companies initially issue shares to raise capital
• Secondary market: after issuance, shares are traded among investors. These transactions only transfer ownership rights without generating new funds.

The Important Role of the Stock Market

The stock market plays a crucial role in the national economy:

• Promoting business development: through information dissemination, company valuation, underwriting, and securities distribution, attracting many investors
• Providing evaluation criteria: helping investors monitor and assess business growth activities
• High liquidity: enabling easy and quick transactions
• Raising external capital: helping the government and enterprises attract foreign capital through bond and stock issuance

Basic Vocabulary and Terms About Stocks

Stock Market Terminology

• Listed company: a company that offers its shares to the market at the stock exchange
• IPO (Initial Public Offering): issuing securities for the first time
• Market capitalization: the total value of a company based on its outstanding shares
• Offering price: the initial listing price of shares on the market
• Portfolio: the collection of stock codes in an investor’s account
• Yield or rate of return: the total dividends received by the investor when holding shares
• Annual report: the company’s annual publication
• Alpha coefficient: return rate adjusted for risk
• Beta coefficient: a measure of stock or portfolio risk
• Price to Book Ratio: compares market price and book value of shares
• Bankruptcy risk coefficient: helps assess risk and predict bankruptcy
• Dividend ratio: indicates the relationship between received dividends and purchase price of shares

Trading Order Terms

• Limit order (LO): buy/sell order at a specified or better price
• Market order (MP): buy at the lowest selling price or sell at the highest current price
• ATO order (only on Ho Chi Minh Stock Exchange): order to determine opening price, before 9:15 AM
• ATC order (both exchanges): order to determine closing price at 2:45 PM
• PLO order (only on Hanoi Stock Exchange): buy/sell order at the closing price after ATC
• Break: a sharp increase in stock price surpassing a certain price range
• Matching price: the price set by investors during trading
• Long/Short: bullish/bearish trading in derivatives
• Stock filtering: using criteria (uptrend, accumulation, market cap, liquidity) to find suitable stocks
• Safety margin: the difference between market price and intrinsic value

Price and Valuation Terms

• Face value: the amount printed on bonds or stocks at issuance
• Market price: the actual buying/selling price in trading
• Listing price: the initial trading price of shares
• Opening price: the closing price of the previous trading session
• Floor price: the lowest price during a trading session
• Ceiling price: the highest price during a trading session
• Settlement date: T+3 (3 days after matching, excluding holidays) when trading stocks
• Price trend: three types are up (Uptrend), down (Downtrend), sideways (Sideway)

Basic Definitions of Stock Trading

• Index (Stock index): a statistical measure based on a list of stocks according to certain ratios. For example, Vnindex represents the code on HOSE, Vn30 is an index of the top 30 stocks by market value and liquidity
• Margin (Margin trading): investors borrow money from securities companies to buy stocks
• Trading volume: the number of stocks traded within a certain period (e.g., one day)
• Short selling: a method where investors sell securities they do not own by borrowing from others and then buy back
• Price fluctuation: on HOSE ±7%, on HNX ±10% compared to the reference price (closing price of the previous session)

Key Components in the Stock Market

Issuer: an organization that issues securities to raise capital.

Investor: a person who conducts buy/sell transactions of securities. Includes:

• Individual investors: those with personal funds wanting to earn extra income
• Institutional investors: large capital entities such as investment firms, insurance companies, financial companies, commercial banks

Securities company: an entity supporting management, consulting, brokerage, and underwriting.

Related organizations: State Securities Commission, stock exchanges, credit rating agencies, securities computing service companies.

Principles of Stock Market Operation

Five principles investors need to understand:

• Competition principle: issuers compete to sell securities; investors compete to buy at good prices and high profits
• Fairness principle: all market participants must comply with common regulations
• Transparency principle: issuers are obliged to regularly, openly, and fully provide information about their securities
• Intermediary principle: transactions between investors and issuers are conducted through securities companies
• Centralized principle: securities transactions only occur at the stock exchange, under strict supervision by state agencies

Stock Trading Hours

The Ho Chi Minh, Hanoi, and UPCOM exchanges operate from 9:00 to 11:30 in the morning and from 13:00 to 15:00 in the afternoon, from Monday to Friday (excluding weekends, holidays).

How to Read Stock Price Tables

The price table is extremely important that new investors (beginners) should understand:

• Green color: price increased compared to reference price
• Red color: price decreased compared to reference price
• Yellow color: price unchanged compared to reference price

Buying and Selling Stocks

Investors can execute buy/sell orders in two ways:

• Manually placing orders on trading software
• Placing orders through a brokerage firm

How to Open a Stock Trading Account

First, investors need to research and choose a securities company with suitable transaction fees. Also, pay attention to margin ratio and interest rates on borrowed margin that the company applies.

Investors can open a stock account directly at a securities company, at a bank, or through a brokerage firm. Required information includes: permanent address, email, frequently used phone number, bank account.

After opening the account, the company will provide an account number and instructions for depositing funds to conduct transactions. An account with over 500,000 VND allows investors to start buying and selling stocks.

Important Notes When Trading Stocks

Vietnam has three main stock exchanges: HCM (HOSE), Hanoi (HNX), and Upcom (for public companies not listed). Additionally, many international stock exchanges operate in Vietnam, each with its own advantages and disadvantages.

Regardless of the exchange chosen, you must select a reputable exchange with a long operational history, managed by domestic securities authorities or international securities regulators (ASIC, FCA, SEC, CySEC…).

New investors should understand the three basic orders: ATO, ATC, LO. Then, they can learn more advanced continuous orders such as MP, MTL, MOK, MAK…

Conclusion

Basic knowledge of stocks is an essential foundation for new investors entering the market. To succeed in stock investing, investors need to learn more about knowledge and experience to be quick to respond to market fluctuations. Start small, manage risks carefully, and continuously improve your trading skills.