Introduction

This guide is provided for individuals and beginner traders who do lack a basic understanding of investing in stock.

What is the Stock Exchange?

The stock exchange can be best defined as:
An organized marketplace for securities featured by the centralization of supply and demand for the transaction of orders by member brokers for institutional and individual investors.
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 Exchanges in Pakistan

There are three Stock Exchanges in Pakistan, namely

1. Karachi Stock Exchange; formed in 1947,
2. Lahore Stock Exchange; formed in 1971,
3. Islamabad Stock Exchange; formed in 1989.

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.

Trading and Settlement

The stock exchanges have introduced a computerized trading system to provide a fair, transparent, efficient and cost effective market mechanism to facilitate the investors.

The trading system comprises of four distinct segments, which are:

i) T+2 Settlement System

In the T+2 settlement system, purchase and sale of securities is netted and the balance is settled on the second day following the day of trade.

Benefits of T+2 Settlement System

It reduces the time between execution and settlement of trades, which in turn reduces the market risk. It reduces settlement risk, as the settlement cycle is shorter.

ii) Provisionally Listed Counters

The shares of companies, which make a minimum public offering of Rs.100 million, are traded on this segment from the date of publication of offering documents. When the company completes the process of dispatch/credit of allotted shares to subscribers, through CDC it is officially listed and placed on the T+2 counter. Trading on the provisionally listed counter then comes to an end and all the outstanding transactions are transferred to the T+2counter with effect from the date of official listing.

iii) Spot/T+1 Transactions

Spot transactions imply delivery upon payment. Normally in spot transactions the trade is settled within 24 hours.

iv) Futures Contract

A Futures contract involves purchase and sale of a financial or tangible asset at some future date, at a price fixed today
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