What is Stock Exchange?
A stock exchange is a marketplace where public limited companies’ stocks and other securities are bought and sold. The stock market is a platform that facilitates securities trade between buyers and sellers. In other words, Stock Exchange is a market where an investor can buy or sell shares of publicly traded companies. Pakistan Stock Exchange (PSX) provides investors with an opportunity to invest in the country’s leading companies to grow their wealth. Pakistan Stock Exchange (PSX) provides a trading platform called KITS that provides investors with a transparent and fair trading environment.
History of Stock Exchange
In the 16th century, when some businessmen and investors started interacting in a small coffee house in London, England. These gatherings then evolved over time into formalized and strictly regulated exchanges that are now called Stock markets. Stock exchanges worldwide are playing a vital role in their local as well as in the global economy by raising capital for companies. These highly regulated institutions (SECP, NCCPL, etc.) now provide a centralized marketplace for investors to trade stocks.
How to get started with Pakistan Stock Exchange (PSX)?
To start with the Pakistan Stock Exchange (PSX), you must open an Account with a PSX-registered broker. The broker will act as an intermediary between you and Pakistan Stock Exchange, i.e., executing the trades on your behalf. To open an account, you must provide basic documentation for your personal and financial information.
How does the Pakistan Stock Exchange function?
When a company decides to become a public limited, it gets itself registered in the Pakistan Stock Exchange (PSX) and issues shares in the stock market which is called Initial Public Offerings (IPOs). These shares can then be bought and sold by any investor who is registered as an investor in the Pakistan Stock Exchange (PSX).
What determines the price of the stock?
Just like in any market, the price of any item strictly depends upon supply and demand. The more the demand for a product is, the higher the price will be. Similarly, the lower price of a product is due to less demand. However, this is not a single factor that influences the price of a stock in a stock market. The price of a share is also influenced by other factors such as geopolitics, overall economic indicators and company-specific news play significant roles in the price. The data portal website PSX provides data on the prices of the shares.
Once you have opened an account, you can then fund your account and start trading in PSX. Before you start trading, it’s essential to do your research and understand the market’s dynamics. You should analyze the companies and sectors you are investing in. You must also keep up-to-date with the latest market news and trends.
General Psychology in a Financial Market
The following cheat sheet shows the general emotions of stock traders or investors in a fun way. There are ups and downs in any financial market and the best investors are always those who invest when the market is undervalued.
Skills required for getting started with PSX?
You need to have an understanding of basic arithmetic to invest in the stock market. There is no requirement of high intellect for stock trading.
How to earn from a Stock Market?
The earning in a stock market is similar to trading in any market. We buy things when the prices are low and sell them when the price gets high. In a stock market, the shares of companies are bought and sold. When you buy a share at a low price and sell it at a higher price, you get a profit from the increase in the price of the share. This is called capital gain but wait! In the Stock market, there are other ways to earn. There are Dividends, Bonus shares and Right Shares from which the investors can earn money.
What is a dividend in PSX?
A dividend is the profit of a company that is shared periodically among the shareholders during the fiscal year. The amount of the dividend is not fixed, and it is decided by the company management in Board Meeting before the announcement. There is no obligation on the industry to announce dividends for the investors. To get a dividend you would need to consider the following dates: Dividend Declaration Date, Excluding Dividend Date (Ex-Dividend Date), and Payment Date. You can check these dates by using the PSX Data Portal.
- Declaration date refers to the date on which the board of directors of a company announces the dividend payment.
- Excluding Dividend date or Ex-date refers to the date before the record date. The investor is eligible for the dividend if he/she buys the share before this date. If shares are bought on this date or after the Ex-date, the investor will not be eligible for the dividend.
- Payment date refers to the date on which the amount of dividend is transferred to the investor’s bank account.
Trade settlement is a bit of a complex process which involves releasing and receiving shares from a CDC account, the Buyer’s and Seller’s brokers, Bank. For your ease, we have made a chart that shows the process flow of trade settlement in the Pakistan Stock Exchange.
What happens after making an account in PSX?
After opening your account with a broker in Pakistan Stock Exchange you will then be required to install the Tradecast desktop application on your Laptop or PC. We also made a video tutorial for you on how to install and use the application for daily trading in PSX.
Once you identify the stock you want to buy, there are two types of orders in a stock market when going for a trade.
A market order is a type of order used in a stock or financial market to buy or sell securities at the prevailing market price. When placing a market order, you are essentially instructing the broker to execute the trade immediately at the best available price. Market orders offer speed and certainty of execution, ensuring that the order is filled promptly. However, the actual execution price may vary slightly from the current displayed price due to market fluctuations.
A limit order is used in a stock market to specify the maximum price you are willing to pay for a buy order or the minimum price you are willing to accept for a sell order. With a limit order, you set a price limit at which you are willing to buy or sell the security. The order will only be executed if the market price reaches or surpasses your specified limit. Limit orders provide control over the execution price, but there is no guarantee of immediate execution as the order will only be filled when the market reaches your specified limit. Once the market is closed the limit order will also be cancelled without any execution.
It’s important to note that the choice between market orders and limit orders depends on your trading strategy, market conditions, and desired execution price. Assessing the pros and cons of each order type can help you make informed decisions when buying or selling securities in the stock market.
Points to consider: Diversification and Risk management
Diversification is a crucial strategy to consider when investing in the Pakistan Stock Exchange (PSX) or any stock market. By diversifying your portfolio across different stocks and sectors within the PSX, you can reduce the risk associated with investing in a single stock or sector. This approach allows you to spread your investments and potentially benefit from the growth and stability of various sectors within the Pakistani market.
For instance, imagine you have investments in industries such as technology, pharmaceuticals, banking, and energy within the PSX. If one industry faces challenges or experiences a downturn, the impact on your overall portfolio may be mitigated by the performance of other sectors. By diversifying across different sectors, you can potentially safeguard your investments from significant losses and take advantage of opportunities that arise in other sectors.
However, it’s important to note that diversification does not eliminate the risk of investment losses entirely. It is still essential to conduct thorough research, monitor market trends, and stay informed about the performance of individual stocks and sectors within the PSX. Regular portfolio reviews and adjustments may be necessary to ensure your investments align with your financial goals and risk tolerance.
In summary, diversification within the Pakistan Stock Exchange is crucial for managing risk and maximizing the potential for long-term returns. By spreading your investments across different sectors and stocks, you can potentially reduce the impact of market volatility and increase the likelihood of achieving your investment objectives in the PSX.
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