Understanding Stocks: Key Insights into the Stock Market

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What are Stocks? Exploring Basic Terms in Stock Trading

1. What is the Stock Market?

3. Commonly Used Securities Terminology

4. Why Do Many People Invest in Securities?

5. Risks in Securities Investment

Stocks are an efficient financial investment channel, offering numerous benefits to investors. Despite their widespread popularity, many struggle to precisely define what stocks are. What are the classifications, roles, and common terms in the stock market? Mytour has compiled and provided answers for you.

What are Stocks? Exploring Basic Terms in Stock Trading

Table of Contents: 1. What are Stocks 2. How to Trade Stocks 3. Commonly Used Stock Market Terms 4. Why Do Many People Invest in Stocks 5. Risks in Stock Market Investment

1. What is the Stock Market?

The stock market is a valuable and tradable financial instrument. Common types of securities in the market include stocks, bonds, derivative securities, and more.

Key Features of Securities:

- Securities are easily exchangeable assets traded on the stock market.

In Vietnam, the stock market is commonly associated with three main types: Equity securities, Debt securities, and Derivative securities. Among them:

+ Equity securities: Equity securities represent ownership rights of shareholders in an organization (company, partnership, or trust fund), implemented in the form of capital contribution shares, including common and preferred shares. Shareholders holding equity securities will benefit from dividends from business operations or profits when selling securities.

+ Debt securities: A debt security reflects the borrowed amount that must be repaid, with terms specifying the scale of the loan, interest rates, and the maturity or extension date.

Debt securities include government and corporate bonds, certificates of deposit, mortgage-backed securities, serving as secured debt with a contract specifying the amount of the loan, interest rates, and the maturity date within a certain period. At the end of the loan term, debt securities are repurchased by the issuer at the end of the period. Owning debt securities, the owner may receive interest payments, repay the principal steadily (regardless of the issuer's activities), along with any rights based on the contract.

+ Derivative securities:

Derivatives are financial instruments priced based on a specific asset or asset group (such as stocks or commodities). Derivative tools are commonly used by individuals and organizations to minimize risks, but they can also be employed by investors to generate profits.

2. Securities Trading Methods

Securities are publicly listed on stock exchanges. The stock market is a place where you can buy, sell, and trade securities on any business day. Besides being called the stock market, this place can also be known as a securities exchange. The stock market plays a crucial role in economic development as it enables companies to quickly access capital from various investors.

The stock market is designed to primarily meet the goal of providing capital for companies to expand their businesses. If a company issues one million shares on the stock exchange at $10 per share, the company will raise $10 million to develop its business. By issuing shares on the stock exchange, the company will obtain the necessary capital to expand its business instead of borrowing from banks to avoid debts and high-interest payments.

The stock market is divided into two types: primary market and secondary market. Among them:

+ Primary Market: Securities are purchased during the initial public offering (IPO) from the issuing organization.
+ Secondary Market: Where securities are bought and sold after the initial primary issuance among investors.

Learn more: What are options

3. Commonly Used Securities Terminology

To gain a better understanding of securities, you need to grasp some commonly used terms in the securities market, such as:

- Securities Investment: An entity creates securities and sells them to raise capital, known as the issuing organization. Those who buy securities are called investors.

- Stock Code: The stock code is the trading code of listed joint-stock companies or fund certificates listed on the exchange.

- Profit in Securities Investment: Profit in securities investment comes from the price difference (between buying and selling prices) and dividends (in cash or stock).

Additionally, you can refer to some commonly used terms when participating in the stock market in the table below.

4. Why Do Many People Invest in Securities?

+) The stock market meets investors' demand for opportunities to buy stocks and profit from developing companies. Some types of stocks pay regular dividends, while others may benefit from selling them at a higher price than the initial purchase. What is profit in securities investment will be explained in our upcoming articles.

+) Unlike real estate investment, playing the stock market is easy to buy and also easy to sell.

5. Risks in Securities Investment

The downside of stock investment is its susceptibility to risks. When stock prices drop to zero, you'll incur a total loss of your investment. If a securities firm goes bankrupt, stock investors will be paid after bondholders. If you seek profit assurance, sticking to bonds is advisable, while for long-term companionship, stocks are the optimal choice.

You are looking to invest in stocks but unsure which reputable securities company to invest in. Check out the article below for guidance on choosing the most suitable name for yourself.

Learn more: Securities companies

When stock prices drop by more than 10 percent, it's known as a stock market adjustment. A sudden and significant drop in stock prices in a day signifies a stock market crash. If stock prices decrease by 20 percent or more, it's called a bear market, indicating a continuous decline in stock prices. This condition typically lasts around 18 months. In contrast, a rising market is referred to as a bull market, demonstrating a steady increase in stock prices with the belief that the upward trend will continue.

Investing in stocks is like riding a roller coaster that's hard to control. Therefore, if you intend to invest in stocks, careful consideration is advised. Besides the concept of what stocks are, readers who want more knowledge in the economic field can explore fundamental specialized terms such as what is a stock, what is a share, what is a bond through detailed and clear articles provided by Mytour.

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If you are researching and interested in playing the stock market, knowing trading platforms such as Trading 212, Forex... is crucial. You can learn about the Review of the Trading 212 platform for an objective evaluation and choose a suitable investment platform.

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Frequently Asked Questions

What are the primary functions and classifications of stocks in the financial market?

Stocks serve as ownership rights in a company and are classified mainly into equity securities, debt securities, and derivative securities. Equity securities give shareholders rights to dividends, while debt securities represent borrowed funds that must be repaid. Derivative securities derive their value from underlying assets and can help mitigate investment risks.

How do investors benefit from trading stocks on the stock market?

Investors benefit by buying shares at a lower price and selling them at a higher price, along with receiving dividends from profitable companies. The stock market provides opportunities for capital growth and income generation, making it an attractive investment avenue.

What are the key differences between primary and secondary stock markets?

The primary market involves the initial public offering (IPO) where new securities are sold directly from the issuer to investors, while the secondary market is where existing securities are traded among investors. This distinction impacts how companies raise capital and how investors buy and sell shares.

What risks should investors consider when investing in stocks?

Investors should be aware that stock investments carry risks such as price volatility and potential total loss if a company's stock price falls to zero. Additionally, if a securities firm fails, stockholders are paid after bondholders, making risk assessment crucial before investing.

Why is understanding stock market terminology important for investors?

Understanding stock market terminology helps investors navigate trading effectively and make informed decisions. Familiarity with terms like stock code, profit in securities investment, and market types enhances one’s ability to analyze market conditions and develop investment strategies.

How do stocks compare to other investment options like real estate?

Stocks are generally easier to buy and sell compared to real estate, offering liquidity and flexibility. While real estate can provide stable returns, stock investments can potentially yield higher profits over time, albeit with increased risks and market fluctuations.