Basic principles and concepts
Trading and strategies
Is a type of securities published by public traded companies in the form of certificates. A stock represents the ownership of a fraction of a company. It entitles the owner of the stock to a part of the company’s assets and profits, proportionate to how much stock they own.
● Owning stocks of a company means that you are a shareholder of the company and can earn dividends.
● Stocks can be traded among investors and institutions in the financial markets, most commonly stock exchanges. In a nutshell, stock prices displayed on the market are determined based on the supply and demand of the stock among investors.
● Stocks are normally split into two types: Common stock and Preferred stock.
● When owning one or more stocks of a company, you can potentially receive dividends based on the company’s operating profits and depending on how much stock you own.
● However, not all companies offer dividend payouts as they tend to use their profits to grow and scale the company business. And if they do pay dividends, preferred stockholders will get paid before the common stockholders.
● Is a type of security issued by a company, government, or institution in exchange for a certain amount of cash. A bond has a maturity date (a due date) when the issuer will have to pay the bond-owner the amount borrowed plus interests agreed on.
● Nevertheless, bondholders have low payment priority when the company of the bond goes bankrupt.
Exchange Traded Fund (ETF)
● Is a collection of securities that allows you to track an index, a sector, industry, a region or use various strategies to diversify your portfolio. For example: tech ETF, auto ETF, banks ETF
● An ETF is marketable and can be traded on an exchange, just like a stock.
● A type of investment security that give the holder the right to buy and sell an asset at a specified price or before a specified date. Covered warrants can involve single stock, multiple stocks, indexes, commodities, or currencies.
● Covered warrants are issued by institutions rather than individual companies.Similar to stock options:
● Market index: VN-index, VN30, HNX-index, HNX30, UPCOM-index
● A market index is a hypothetical portfolio of investment holdings that represents a segment of the financial market. Indexes are used as benchmarks to compare the performance of the financial market with that of investment instruments.
● Indexes in Vietnam:
VN-index: includes all stocks of listed companies on the Ho Chi Minh stock exchange (HOSE).
VN30: represents top 30 large-cap and liquid stocks listed on HOSE.
HNX-index: includes all stocks of listed companies on the Hanoi stock exchange (HNX).
HNX30: tracks the 30 leading stocks in terms of market capitalization and liquidity on HNX.
UPCOM-index: represents all stocks on the Unlisted Public Company Market (UPCOM).
● Is a financial contract with value based on price movements of the underlying assets, which commonly are stocks, bonds, commodities, currencies, interest rates and market indexes.
● Common Forms of Derivatives:
o Future: a legal agreement between two parties to buy or sell a certain amount of asset at an agreed-upon future date at an agreed-upon price. The holder of the contract is obliged to execute the contract unless the position is closed before the expiration date.
o Forward: a forward contract is similar to a future contract, but it cannot be traded on a centralized exchange and are regarded as an over-the-counter (OTC) instrument.
Swap: is a private agreement (untradeable) between two parties where each party exchanges future cash flows, such as interest rate payments. Its value is based on cash flows, not on an underlying security or asset.
o Option: an agreement that grants the investor the rights, but not the obligation, to buy or sell a stock at a predetermined price on or before a specific date. A ‘put’ option is a bet that a stock willfall; a ‘call’ option is a bet that a stock will rise.
● Is a diversified portfolio that can issue an unlimited number of shares. Investors can buy those shares to invest in a diversified portfolio with a specific investment objective.
● Open-end funds are managed by portfolio managers, which then involves management fees.
● Open-end funds cannot be traded on exchanges, however, can easily be bought and sold at the end of the trading day at their NAV (net asset value).
● Is where investors trade shares of publicly listed companies and made up of stock exchanges.
● A stock exchange is a centralized location where financial instruments are traded. It connects corporations, governments with investors and helps trading proceed in an orderly and fair manner.
● In Vietnam: Ho Chi Minh Stock Exchange (HSX), Hanoi Stock Exchange (HNX) and Unlisted Public Company Market (UPCOM)
● Entities involved:
o Listed companies.
o Securities companies.
o Stock exchanges
o State Security Commission (SSC)
- Primary and secondary marketo
o Primary market (issues market): where a company publicly sells new stocks and bonds for the first time, usually an initial public offering (IPO).
o Secondary market (stock market): where securities are traded among investors after companies had sold its offering in the primary market.
● Investing vs. Trading:
● There are two methods when it comes to attempting to make profits in the financial market:
o Investing: means that you buy a stock and hold it for an extended period of time. Investing is the long-term approach to the markets.
o Trading: involves short-term strategies to buy and sell stocks on a shorter time frame, or in other words, more frequently. Traders take profits from the fluctuations of the stock market by most commonly buying low and selling high or using other trading instruments.
Fundamental vs. Technicalanalysis:
o Is a method of measuring a security’s intrinsic value by analyzing related economic and financial factors. It is usually done from a macro to a micro perspective in order to value the actual or “fairmarket” price of a security.
o Some factors that are often considered: Business model, competitions, management, balance sheet, income statement, statement of cash flows, etc.
o Uses statistical trends from trading activities to evaluate investments and identify trading opportunities. Historical trading data is gathered and analyzed to generate short-term trading signals or forecast the price movement of tradable instruments.
o There are many tools and examples of existing patterns and signals that have been developed to support this method of analysis.
o General indicators used for technical analysis are price trends, chart patterns, volume and momentum indicators, oscillators, moving averages, support and resistance levels.
● Every investment involves risks that can generate losses. In order to minimize the risk, investors can diversify portfolio, allocating assets and sizing positions.
● Is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions.
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