The stock trading market is a crucial component of the financial system, serving as a central hub to connect investors with attractive investment opportunities. With the rapid growth of the economy, the stock market not only facilitates capital raising for businesses but also provides tools for investors to optimize returns and manage risks effectively.
- Definition of the stock trading Market
Currently, neither Vietnamese law nor securities law specifically defines what constitutes a stock trading market. However, the stock market can generally be understood as a marketplace where securities, primarily stocks, are bought and sold. It provides a platform for companies to raise capital by issuing shares and for investors to trade those shares.
The stock market is categorized into two segments: the primary market and the secondary market. The primary market is where securities are issued for the first time, while the secondary market is where previously issued securities are traded among investors.
- Principles of operation in the stock trading Market
Firstly, respect for ownership Rights and other property Rights
The first principle is to respect ownership rights and other property rights in securities and stock market activities. It also protects the freedom of trading, investing, conducting business, and providing securities-related services for organizations and individuals. This principle aligns with the broader legal principle of ensuring the freedom of business activities, where entities are allowed to do anything that is not prohibited by law. No organization or individual can interfere with the buying, selling, or business activities of other market participants as long as these activities comply with legal regulations.
Secondly, fairness, openness, and transparency
Information plays a critical role in securities activities on the stock trading market. Information serves as the foundation for investors to evaluate and make investment decisions. To ensure fairness, all investors should have equal access to market information. Such information must be publicly disclosed. Any act of insider trading or misuse of non-public information to buy or sell securities is strictly penalized by regulatory authorities.
Thirdly, protection of legitimate Rights and interests of investors
This principle is essential as it assures investors that their legitimate rights and interests will be protected when they invest in securities. Regulatory authorities are responsible for issuing relevant legal regulations and taking necessary actions to protect investors’ rights and interests when required. This protection helps maintain and enhance investor confidence in the stock trading market.
Fourthly, risk accountability
This principle is closely linked to the first principle. When the State acknowledges and respects the freedom of market participants to trade and conduct business activities related to securities, these participants must be aware of and assume responsibility for the risks arising from market activities.
- Nature of the stock trading Market
Like other markets, the stock trading market does not have a specific physical form. It can only be understood through the activities that take place within it. On the stock trading market, these activities are the securities transactions performed by participants. The level of activity, diversity, and dynamism of securities transactions determines the vibrancy of the market. In other words, to understand the nature of the stock trading market, one must examine the activities that constitute it. The stock trading market can be analyzed from two perspectives:
On the one hand, the stock trading market is a collection of activities that redistribute capital from one entity to another, or from one sector to another. This redistribution enables the rapid circulation of capital.
On the other hand, the stock trading market is a collection of securities transactions conducted in accordance with the current laws. Market participants engage in legally recognized transactions to meet their respective needs.
- Functions of the stock trading Market
- Redistribution of capital
The stock trading market functions as a mechanism to redistribute capital among investors. For investors, the primary goal of investing in securities is to generate profits. During the investment process, investors aim to allocate capital to sectors offering the highest returns and withdraw capital from less profitable or unprofitable sectors as quickly as possible. The market facilitates this process, helping investors achieve their goals efficiently.
- Determination of market prices for securities
This is a critical function of the stock trading market. In a market economy, the price of goods is determined by the relationship between supply and demand. On the stock trading market, securities transactions occur frequently and continuously, adhering to the principles of supply and demand. Based on this continuous interaction, the market price of securities is accurately determined. The determination of securities’ market prices has the following significant implications:
- Index Formation: It helps establish stock market indices, which serve as key economic indicators for a nation. These indices enable regulatory authorities to assess economic development and formulate appropriate policies.
- Issuing Organizations: For issuing organizations, market prices are crucial when planning additional securities issuances, as the price of newly issued securities depends on the current market price.
- Investors: Market price determination helps investors make timely and informed decisions about whether to invest or not.
- Providing high liquidity for securities
Liquidity refers to the ease with which securities can be converted into cash. Thanks to the stock trading market, listed securities can be easily bought and sold, allowing investors to quickly recover capital for personal needs or redirect investments into other sectors. Securities that do not meet the listing criteria of the stock trading market have lower liquidity.
In conclusion, the stock trading market is not merely a venue for buying and selling securities but a complex structure governed by various principles and essential functions. By understanding its concepts and nature, investors can make smarter and more effective decisions. With the continuous growth of the global economy, the stock market will remain a significant driver of economic development and a source of attractive investment opportunities for investors of all levels.
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Dinh Phuong Thao