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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Showing posts with label Investor's Guide 1. Show all posts
Showing posts with label Investor's Guide 1. Show all posts
Wednesday, April 15, 2009
What are Shares?
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’.
Why Do Companies Issue Shares?
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.
Why Do Companies Issue Shares?
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 Wisely
When trading in the Stock Market, one should avoid,
1. Greed; being greedy can be a problem as it corrupts wisdom,
2. Making the same mistake twice,
3. Following the crowd, as the loss at the end is of the individual and not the crowd itself,
4. Putting all your ‘eggs in one basket’. You should diversify and spread your investment,
5. Using rumors as tips, as this can result in losses. A tip can end up as a ‘pit’,
6. Emotions; being emotional can effect reasoning. Traders should use research backed by fundamental reasoning.
7. Impatience; patience pays, perseverance gains,
8. Over borrowing; loan repayment is not an investment.
When trading in the Stock Market, one should remember,
1. Information; it must be checked. Opinion, facts or fiction? Act accordingly,
2. Knowledge; Stock Market principles and practices are unique. Master its cycles, its ups and downs,
3. Wisdom; success depends on your discipline and self improvement,
4. Action plans; plan a scheme, act and follow through. Have options and tactics to win the Stock Market game,
5. Shrewd and Thrifty; be prudent with your money. Avoid stocks that are overvalued but keep the cash or save for other investments,
6. Stock Value; be aware of stock’s true value, despite its ups and downs,
7. Risk Vs. Reward; minimize your risk, maximize your returns,
8. Investment protection; safety of your portfolio and Share Capital is more important.
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.
1. Greed; being greedy can be a problem as it corrupts wisdom,
2. Making the same mistake twice,
3. Following the crowd, as the loss at the end is of the individual and not the crowd itself,
4. Putting all your ‘eggs in one basket’. You should diversify and spread your investment,
5. Using rumors as tips, as this can result in losses. A tip can end up as a ‘pit’,
6. Emotions; being emotional can effect reasoning. Traders should use research backed by fundamental reasoning.
7. Impatience; patience pays, perseverance gains,
8. Over borrowing; loan repayment is not an investment.
When trading in the Stock Market, one should remember,
1. Information; it must be checked. Opinion, facts or fiction? Act accordingly,
2. Knowledge; Stock Market principles and practices are unique. Master its cycles, its ups and downs,
3. Wisdom; success depends on your discipline and self improvement,
4. Action plans; plan a scheme, act and follow through. Have options and tactics to win the Stock Market game,
5. Shrewd and Thrifty; be prudent with your money. Avoid stocks that are overvalued but keep the cash or save for other investments,
6. Stock Value; be aware of stock’s true value, despite its ups and downs,
7. Risk Vs. Reward; minimize your risk, maximize your returns,
8. Investment protection; safety of your portfolio and Share Capital is more important.
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.
Investor's Protection
>> For security reasons, AKD Trade insists that all users, existing and new, should not show their Passwords to other individuals. The same is said for the PIN Code.
>> Investors should also not enter into transactions that involve financing and irregular Badla amounts that are not stated within the rules and regulations of the Karachi Stock Exchange.
>> All payments made to brokers and/or company staff should be crossed cheques (Payee’s Account Only) and obtain proper receipts of the payments made duly signed by the authorized persons.
>> Investors should also not enter into transactions that involve financing and irregular Badla amounts that are not stated within the rules and regulations of the Karachi Stock Exchange.
>> All payments made to brokers and/or company staff should be crossed cheques (Payee’s Account Only) and obtain proper receipts of the payments made duly signed by the authorized persons.
Ownership of Shares
Each share represents a small stake in the equity of a company. You can buy large or small lots to match the amount of money you want to invest. A company’s share price can rise or fall as a result of its own performance or market conditions.
Once the shares are brought and transferred in your name your name will be entered in the company’s share register, which will entitle you to receive all the benefits of share ownership including the rights to receive dividends, to vote at the company’s general meetings and to receive the company’s reports.
If you decide to sell your shares you will need to deliver share certificates to the broker in time for the transaction to be completed.
With the introduction of the Central Depository System (CDS), an investor can have shares in paper form or can own shares in an electronic book- entry form at the Central Depository Company (CDC).
Why Do Investors Buy Shares?
Studies have shown that over a twenty-year span, investment in shares has provided greater returns than most other forms of savings. Shares can provide you with a regular stream of income through dividends as well as the potential for your investments to grow in value. If the prices of shares go up, you can sell them for more than you paid. This is called capital gain.
What are Dividends?
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?
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.
Risks and Rewards
Buying 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.
Once the shares are brought and transferred in your name your name will be entered in the company’s share register, which will entitle you to receive all the benefits of share ownership including the rights to receive dividends, to vote at the company’s general meetings and to receive the company’s reports.
If you decide to sell your shares you will need to deliver share certificates to the broker in time for the transaction to be completed.
With the introduction of the Central Depository System (CDS), an investor can have shares in paper form or can own shares in an electronic book- entry form at the Central Depository Company (CDC).
Why Do Investors Buy Shares?
Studies have shown that over a twenty-year span, investment in shares has provided greater returns than most other forms of savings. Shares can provide you with a regular stream of income through dividends as well as the potential for your investments to grow in value. If the prices of shares go up, you can sell them for more than you paid. This is called capital gain.
What are Dividends?
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?
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.
Risks and Rewards
Buying 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.
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