Investment Activities in Capital
Markets
Pham Van Hung

The investment Process
• 1, Set investment objectives and policy
• 2, Perform security analysis
• 3, Construct a portfolio
• 4, Evaluation the performance of the portfolio
• 5, Revise the portfolio

Investment Objectives and Policy
• Investment objectives should be stated in
terms of both risk and return
• This first step of the investment process
concludes with identification of the potential
categories of finacial assets for consideration
in the ultimate portfolio. This identification
will be based on the investment objectives,
amount of investible wealth, tax status of
investor.

Securities analysis
• Securities analysis involves examing a number
of individual securities (or groups of securities)
within the broad categories of finacial assets
previously identified.
• There are two approach of securities analysis:
technical analysis and fundamental analysis.

Portfolio Construction (PC)
• PC involves identifying those specific assets in
which to invest as well as determining the
proportions of the investtor's wealth to put in
each one. Here the issues of selectivity, timing,
and diversification need to be addressed by
the investor.

Portfolio Performance Evaluation
• Portfolio performance evaluation involves
periodically determining how the portfolio
performed in terms not only of the return
earned but also the risk experenced by
theinvestor. Thus, appropriate measures os
return and risk as well as relevant standard are
needed. The results obtained from this step
may indicate whether or not portfolio revision
is in order.

Portfolio Resision
Portfolio Resion concerns the periodic repetition
of the previous four steps. That is, overtime the
investor may change his/her investment
objectives, which, in turn, means that the
currently held portfolio may no longer be
optimal. Thus, a new portfolio should be formed
by selling some securities currently held and
purchasing new ones.

TYPES OF ORDERS
• At the market order:
• Limit order:
• Stop order:
• Limit stop order:
• Other orders:

Market orders
• Orders that do not specify a price are treated
as the market orders.
• When placing a market order the investor can
be fairly certain that the order will be
executed but is uncertain of the price.

Limit orders
• Limit order is an order which a limit price is
specified by the investor when the order is placed.
If the order is to purchase shares, then the broker
is to execute the order only at a price that is less
than or equal to the limit price. If the order is to
sell shares, the order is executed only at a price
that is greater than or equal to the limit price.
• An investor using a limit order may not be certain
that the order will be executed.

Stop order
• It is a conditional market order. For a stop
order, the investor must specify what is know
as a stop price. If it is a sell order, the stop
price must be below the market price at the
time the order is placed; conversely, if it is a
buy order, the stop price must be above the
market price at the time the order is placed. If
someone else later trades the stock at a price
that reaches or passes the stop price, then the
stop order becomes, in effect, a market order.

Limit Stop Order
• A limit stop order is a type of order that is
designed to overcome the uncertainty of the
execution price associated with a stop order.
With a limit stop order the investor specifies not
one but two price – a stop price and a limit price.
What happens is that once someone trades the
stock at a price that reaches or passes the stop
price, then a limit order is created at the limit
price. Hence, a limit stop order can be viewed as
a conditional limit order.

Other orders
• Day order: the order will be filled only during the day in
which it was entered. If the order is not filled by the
end of the trading session, then it expires.
• Open orders or good-till-cancelled order remain in
effect until they are either filled or canceled by the
investor.
• Fill or kill orders are stipulating that if the order can
only be partially completed, then any portion unfilled
will be canceled.
• All or none orders requires the trader to execute the
total number of shares specified before it will be
accepted.

Call and continuous auction
Call Auctions
• In call auction, trading is
allowed only at certain
specified times. With this
system, orders can be
executed at the price that
allows the maximum
number of shares from
accumulated orders to be
traded.
Continuous auction
• Trades may occur at any
time.
• Since order from investors
arrive more or less
randomly, price in such a
market would vary
considerably, depending on
the flow of buy orders
relative to the flow of sell
orders.

Priority in order matching
• Price
• Time
• Customer
• Quantity

Principles of order matching
• 1: Executing price (EP) is a price that allows the maximum
number of shares from accumulated orders to be traded.
• 2: Purchasing price that higher than EP and selling price
that lower than EP can be executed
• 3: Distributing from lower amount to higher amount
• 4: Priority to price that closer to last closing price.
• 5; Priority to price that have lower spread between selling-
buying accumulative amount.

An example of auction

Exercise

Results

Margin account
• Margin account is an account that has overdraft
privileges: when limits, if more money is needed
than is in the account, a loan is automatically
made by the broker.
• When opening the margin account with a
brokerage firm, an investor must sign a margin
agreement. This agreement grants the brokerage
firm the right to pledge the investor’s securities
as collateral for bank loans, provided the
securities were purchased using a margin account.

Short sale
• Short sale is the process that investor to “sell
high, buy low”. The investor sells a security
first and buys it back later.
• Short sale is accomplished by borrowing
shares for use in the initial trade and then
repaying the loan with certificates obtained in
the later trade.

Fundamental and technical analysis
Fundamental Analysis
• Fundamental analysis
entails searching for a
s e c u r i t y i n w h i c h t h e
financial analyst’s estimate
of such things as the firm’s
value, the future earning,
the liquidity…
Technical Analysis
• Technical analysis is the study
of the internal stock exchange
information as such. The word
“technical” implies a study of
the market itself and not of
those external factor which
are reflected in the market…
All the relevant factors can be
reduced to the volume of
stock transactions and the
level of share price…

Glossary
• Asked price is the price at
which a market maker is
willing to sell a specified
quantity of a particular
security
• Bid price is the price at
which a market maker is
willing to purchase a
specified quantity of a
particular security.