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---------------------------------------------------------------------------------- INTRODUCTION TIPS FOR INVESTING. TECHNICAL TERMS. INVESTMENT POLICY & TAX INCENTIVES Trading & Settlement System: Risk Management:
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What is the Stock Exchange? | Top | The stock exchange can be best defined as: Stocks in publicly traded companies are bought and sold at a stock market also known as a stock exchange. This is the most common way of buying and selling shares. The Stock Exchange can be also seen as a control to regulate the Marketplace where listed public companies and traders buy and sell shares Types of Stock Exchange | Top | There are three Stock Exchanges in Pakistan, namely
1. Karachi Stock Exchange; formed in 1947, Out of all the three Exchanges, the Karachi Stock Exchange is the premiere Stock Exchange of the country, with over 700 listed companies. It was established soon after the creation of Pakistan The term ‘shares’ can be best defined as ‘represented ownership in part of a company. When you buy a share in a company you become a joint owner of the business and share in the future of that business. This is also known as equity’. WhyCompany Issue Share? Companies issue shares to raise money from investors. This money is used for the development and growth of businesses of companies. A Company can issue different types of shares such as ordinary shares, preference shares, shares without voting rights or any other shares as are permissible under the law. These give shareholders a stake in the company’s equity as well as a share in its profits, in the form of dividends, and a voting right at general meetings of shareholders.
Tips for Investing.
A good example of understanding the above can be in the case of Hershey’s. Just because the chocolate tastes good does not mean that the position of the company is strong. A point should be made that the product of a company does not provide merit to its strength in the index. Things You Should Know Before Trading. | Top |
shares can offer advantages over saving in deposit accounts: your investment may increase in value besides paying you dividends. You share the rewards when the company does well and the price of the shares goes up. But if the company performs badly, the share price may go down and the value of your investment will be reduced. Other factors, such as the performance of the stock market as a whole and the general economic climate, may also affect the price of your shares. Investment in shares is therefore investment in ‘risk capital’. The shareholders can be rewarded for taking this risk and the potential return on your money can be higher than that on other investments. You can reduce your risks with careful planning.
When a Stock is Attractive to Trading? There are two general ways of determining a stock's potential as an investment. You can look at the “fundamentals” or you can look at “technical analysis” and of course you can look at both. Fundamental analysis looks at factors such as earnings, cash flow, debt, strength in its industry, outlook for the industry, general economic factors, interest rates, and so on. If these factors are good, then even if there are short-term setbacks, over the long run, the stock should do well. Technical analysis looks at factors like volume of trading, cyclical behavior, trends, moving averages and many others. Some investors use both approaches. They use fundamentals to determine the long-term potential of a company and technical analysis to decide when to buy. For example, you may believe that a certain company has great potential over the long-term and will be worth much more in years to come. However, it could be that the current market for this company’s product is temporarily weak and that as a result, the stock price could fall. Technical analysis could be helpful in determining how far the price might fall and could provide help in indicating a good time to buy. Dividends are returns paid to shareholders out of the profits of the company. Returns can be in the form of cash or additional shares of the company called bonus shares. Dividends are usually paid once or twice a year depending upon the company’s profit distribution policy. What is Capital Growth? | Top | This is one of the ways in which shares differ from deposit accounts. The principal amount of money you put in a bank or any fixed income savings scheme always stays the same e.g. if you start with Rs.100,000 you will always have Rs.100,000 (other than any interest earned).changes in value according to the performance of the company. With good management, the value of your investment in shares of a company can grow over time so that your shares are worth more than you paid for them. This is capital growth. Rights Issue | Top | A rights issue gives the existing shareholders the right to subscribe for new ordinary shares at an issue price lower than the prevailing market price and at a ratio equivalent to their existing shareholding. Companies carry out a rights issue when they want to raise additional funds to finance their capital requirements How to spot Scams | Top | Minimize the risk of losing your savings to scams by recognizing the different types of illegal investment schemes that are plaguing our society. Here are some typical characteristics and promises made by scams: For every investment that you make, you will receive a high return, for instance, 20-30% per month, every month. You are told that the offer is for a limited time and that you MUST join or buy today. You receive unsolicited phone calls offering investment opportunities and you have no idea how the company has obtained your phone number. You receive unsolicited e-mails asking you for your bank account number because they want to send you money. You are offered an investment product that guarantees large profits with no financial risk. It is hard to find any information about the company’s license or physical existence in any regulator or authority’s website. What is the CDC | Top | Central Depository Company of Pakistan Limited (CDC) started in 1993 to manage and operate the Central Depository System. CDS is an electronic book entry system to record and transfer securities. Electronic book entry means that the securities do not physically change hands and the transfer from one client account to another takes place electronically. CDC is to operate as a central securities depository on behalf of the financial services industry to support an effective capital market system that will attract institutional and retail level investors from Pakistan and abroad. Its basic purpose is to operate and maintain an electronic book entry settlement system for equity, debt and other financial instruments. Tracking stocks | Top | To track how your stocks are doing, you have to look at stock listings. Stock listings are published in most of the newspaper (e.g. Dawn). The listings look confusing at first, since they look like a mixture of numbers, but can be a very useful tool when tracking your stock's progress. The listings are organized into many columns, including the following information: Company name: This field is usually abbreviated in the listings, and listed alphabetically. Symbol: This field is a one to five character symbol used as a sort of nickname for the company. Volume: The volume is the amount of stocks that were traded the day before. High, Low and Close: These are the highest and lowest price of the stock the day before, and the closing price for the day before. This is an indicator of how much the price of the stock fluctuated throughout the previous day. Net change: This is the change of the price of the stock from the previous day. This gives you an idea whether the price is dropping or rising. In addition to the stock listings, other useful information about companies is available in the Annual Reports that reflects the balance sheet, income statement and cash flows and states the reasons for changes in these financial statements during the year. Costs Costs that are associated with stock dealing usually fall under the following heads: Daily trade charges cost incurred by the investor for intra day transactions. Badla charges are the charges incurred by the clients for carry over transactions commonly known as COT. Delivery charges cost incurred by the investor for delivery transactions. It is highly recommended that the investors should have a proper understanding of the commission structure of the brokerage service. The structure varies from broker to broker in most cases. It is advisable that the investor should ask his broker about all the cost associated with stock dealings to arrive at his net profit position What is Badla? | Top | Badla is a mechanism to carry forward a speculative trade. It is also known as the Carry Over Transaction (COT). Badla Finance in simple terms means putting money on interest. The mechanism is very easy for the stock broking society but complex for the ordinary investor. History says Badla was born in the nineteenth century. Then, till today, the purpose has remained the same, the mechanism has hardly changed but the process has. These changes have made Badla Finance safer, more secure and transparent to clients besides a fair business practice for the stockbrokers Mechanism Of Badla? | Top | A person buys shares with the intention to make profits but without blocking money. The purchase at the end of the settlement is carried forward to the next settlement. Here is where the client / Badla financiers steps in. The financier's block the money for taking delivery of shares purchased by the speculators. He gives the money to the exchange for shares bought. For this facility the speculator pays interest to the financiers. This interest is known as Badla Badla Financing Through Stock Broker? | Top | The financier gives money to his broker who in turn, hands over the same to the Exchange. The shares are retained by the Exchange under custody, on behalf of the broker's client. Since the shares and the money lie with the Exchange, broker's risk is also eliminated. Example: If "A" has purchased 1000 shares of MCB @ Rs. 50 per share in Settlement 1, he has to take delivery from "B" who has sold the same. "A" would like to carry forward his position to the next settlement by letting "C" (Badla Financier) take delivery at the prevailing interest rate. In settlement 2 "A" will have to purchase the shares at a higher badla rate as determined by the Exchange. If the Badla was Rs. 0.20 in settlement no.1, "A" will have to buy MCB @ Rs. 50.20 per share from "C". The difference in purchase price in settlement no.1, and sale price in settlement no.2, is the earning for the Badla Financier. List of COT Eligibale Securities? | Top |
INVESTMENT POLICY & TAX INCENTIVES Foreign Investor - specific: | Top |
TRADING & SETTLEMENT
SYSTEM: T+3 Counter:
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Top | Futures Trading in Provisionally
Listed Companies.
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| Spot / T+1 Transitions:
| Top | Future Contracts:
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Trading Session
Monday - Thursday
Friday RISK MANAGEMENT: The stock exchanges have an effective system for payment of deposits against exposure and losses under the Regulations. Governing Members' Exposure, whereby member are required to deposit exposure / losses as per approved slabs in cash or approved securities with margin ranging from 5 to 25 %. Stock Exchanges has devised scrip wise upward and downward circuit breaker limits in order to control the extreme price fluctuation on all trading counters i.e. T+3, Future, Odd Lots and Square-up Markets. Theses are in the form of order rejects. i.e. system rejects a bid or offer outside the circuit breaker limits. Details of the same mentioned hereunder: The existing upward circuit breaker limit is fixed at 5% or Rs. 1.00, whichever is higher form last closing price and for downward circuit breaker limit is 5% or Rs. 1.00 whichever is higher form last closing price. Circuit breaker limits placed are similar to T+3 i.e. 7.5% or Rs. 1.50 for upward and 5% or Rs. 1.00 whichever is higher from last closing price for downward movement. No trade in the Future Contract market will be allowed beyond the above price fluctuation. The circuit breaker limits for Odd Lot Market are 20% or Rs. 3.00, whichever is higher form the last closing price in the Ready Market, this is applicable on both the sides, i.e. upward as well downward.
Currently the applicable upward and downward circuit breaker
limits in the Square- up Market are 5% or Rs. 2.00, whichever is
higher from the last closing price tine the Ready Market. |
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