What is Stock Market?
The stock market is where investors connect to buy and sell investments most commonly, stocks, which are shares of ownership in a public company.
A stock market is similar to a share market. The key difference is that a stock market helps you trade financial instruments like bonds, mutual funds, derivatives as well as shares of companies. A share market only allows trading of shares. Click here to start your journey on Stock Market. The stock market is where investors can trade in different financial instruments, such as shares, bonds and futures/derivatives. The key factor is the stock exchange the basic platform that provides the facilities used to trade company stocks and other securities. In Pakistan, the only primary stock exchange is the Pakistan Stock Exchange (PSX) with its trading floors in Karachi, Lahore and Islamabad.
Initially Karachi Stock Exchange was established on 18 September 1947 and was incorporated as Karachi Stock Exchange Limited on 10 March 1949. The KSE began with 5 companies as KSE 50 with a total market capitalization of ₨37 million (US$220,000). It is also Pakistan’s first stock exchange and has since then played an important role in the Pakistani stock market.
The exchange shifted from an open outcry system to an automated trading environment in 2002, the Karachi Automated Trading System or KATS was launched. This shows that Pakistani stock markets have a strong history. PSX was established in 11th Jan, 2016 after the integrated under the Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 to form Pakistan Stock Exchange from individual exchanges of Karachi, Lahore and Islamabad.
Types of Share Market:
There are two types of markets;
Primary Market: This where a company gets registered to issue a certain amount of shares and raise money. This is also called getting listed in a stock exchange.
Secondary Market: Once new securities have been sold in the primary market, these shares are traded in the secondary market. This is to offer a chance for investors to exit an investment and sell the shares.
What is SECP and Its Role:
Stock markets are risky. Hence, they need to be regulated to protect investors. The Security and Exchange Commission of Pakistan (SECP) is mandated to oversee the secondary and primary markets.
Securities and Exchange Commission (SECP) has the responsibility of both development and regulation of the market. It regularly comes out with comprehensive regulatory measures aimed at ensuring that end investors benefit from safe and transparent dealings in securities. However Pakistan Stock Exchange acts as a frontline regulator looks after the day to day affairs of market/exchange.
The Securities Exchange Commission of Pakistan (SECP), Pakistan Stock Exchange, brokers, and traders/investors are the participants in this whole workflow. The stock exchange provides a platform for trading in financial products. The companies (listing their shares), brokers and traders must register with SECP and Pakistan Stock Exchange (PSX) likewise Investor has to register UIN before trading.
Its basic objectives are:
- Protecting the interests of investors in stocks
- Promoting the development of the stock market
Regulating the stock market
- Stock exchanges are financial intermediaries that connect buyers and sellers and facilitate a trade of the stocks listed on that exchange.
- Stockbrokers act as a link between the stock exchanges and investors/traders like you. To be able to buy and sell shares in the stock market, you need to open a trading account with a stockbroker.
- In Pakistan, there is one premier exchange - Pakistan Stock Exchange (PSX) after the integration of three exchanges from Karachi, Lahore & Islamabad 2016.
- KSE-100 Index is the bench mark index of the Exchange and represents the top 100 companies of the exchange.
- The Securities and Exchange Commission of Pakistan (SECP) is a government entity that’s responsible for the regulation and development of financial markets in the country.
How Stock Market Works?
The stock market is one of the largest avenues for investment. As billions of rupee worth stocks traded in the stock exchange in Pakistan. But before starting, you might want to get acquainted with a few market-related concepts. Before you learn the basics of trade, it is essential to know about how does stock market works?
The stock exchange provides a platform for trading in financial products. The companies (listing their shares), brokers and traders must register with SECP and Pakistan Stock Exchange (PSX) likewise Investor has to register UIN before trading.
- We introduced market participants and other share market basics. Let’s try to stitch these narratives together and understand how the stock market works.
- A stock exchange in the platform where financial instruments like stocks and derivatives are traded. Market participants have to be registered with the stock exchange and SECP to conduct trades.
- First, a company gets listed in the primary market through an Initial Public Offering (IPO). In its offer document, it lists details about the company, the stocks being issued, and so on.
- Once listed, the stocks issued can be traded by the investors in the secondary market. This is where most of the trading happens. In this market, buyers and sellers gather to conduct transactions to make profits or cut losses.
- AZEE Securities like brokerage firms are entities registered with the stock exchange. They act as an intermediary between you, as an investor, and the stock exchange. Your broker passes on your buy order to the exchange, which searches for a sell order for the same share. Once a seller and a buyer are fixed, a price is agreed finalized, upon which the exchange communicates to your broker that your order has been confirmed.
- However, there are tens and thousands of investors. It is impossible for all to converge in one location and conduct their trades. This is where stock brokers and brokerage firms play role. Once you place an order to buy a particular share at a said price, it is processed through your broker at the exchange. There are multiple parties involved in the process behind the scenes.
- Meanwhile, the exchange also confirms the details of the buyers and the sellers to ensure the parties don’t default. It then facilitates the actual transfer of ownership of shares. This process is called settlement. Earlier, it used to take weeks to settle trades.
- Now, this has been brought down to T+2 days. For example, if you conducted a trade today, you will get your shares deposited in your CDC Sub-Account by the day after tomorrow (i.e. two working day).
The exchange ensures that the trade is honored during the settlement. Whether the seller has the required stock to sell or not, the buyer will receive his shares. If a settlement is not upheld, the sanctity of the stock market is lost, because it means trades may not be upheld.
Key Players in the Stock Market:
In the stock market at a first glance, it may merely seem like a place where only buyers and sellers trade stocks. But looking closer, you’ll see that there are many other key players who make up the stock markets. Let’s get to know them better.
Securities & Exchange Commission of Pakistan:
Securities and Exchange Commission of Pakistan is a government entity that’s responsible for the regulation of financial markets in the country. The main functions of SECP include promotion of the securities market in Pakistan, protection of the investors’ interests and regulation of all the activities that take place in the market. Let’s take a quick look at what the SECP does to make sure that the financial markets are not disturbed.
- Frames rules and regulations that dictate the way financial markets should be operated.
- Keeps an eye on the operations of various stock and commodity exchanges.
- Protects the interests of retail investors.
- Ensures that there is no manipulation of markets.
- Keeps stockbrokers, corporates and other market participants in check.
Central Depository Company of Pakistan:
A Central Depository Company – CDC Pakistan allows you to store the electronically stocks you own in a dedicated Investor account. This account is known as Investor Account (IAS). It’s effectively a digital account that acts as a storage space for all the shares you hold in the electronic format. AZEE Securities as registered Market Participant who acts as an intermediary between you and the CDC. As an investor, you cannot trade without opening a CDC Sub-Account with broker. You’re required to route all your transactions with through broker.
National Clearing Company Pakistan Ltd:
National Clearing Company of Pakistan Limited (NCCPL) is a key institution of Pakistans Capital Market providing clearing and settlement services to the Pakistan Stock Exchange Limited. National Clearing & Settlement System (NCSS) to replace the separate and individual Clearing Houses of three Stock Exchanges, namely Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange by a single and centralized entity. NCCPL performs Book-Entry securities through NCSS, besides this also manages UIN registration and Centralize KYC System. AZEE Securities as registered Market Participant who acts as an intermediary between you and the NCCPL. As an investor you cannot start your account without generating UIN and KYC due diligence with NCCPL.
The Capital Market of Pakistan has a triangular foundation comprising of the stock exchange, Depository Company and NCCPL; the goal of all being an economically stronger, more prosperous Pakistani Capital Market.
Stockbrokers are another section of financial intermediaries who play a major role in the stock markets. These entities are registered with the SECP/Stock exchanges as trading members. Basically, they act as a link between the stock exchanges and investors/traders like you. To be able to buy and sell shares in the stock market, you need to open a trading account with AZEE Securities a stockbroker of your choice.
- The Securities and Exchange Commission of Pakistan is a government entity thats responsible for the regulation of financial markets in the country.
- Stock exchanges are financial intermediaries that connect buyers and sellers and facilitate a trade of the stocks listed on that exchange.
- In Pakistan, there are two exchanges Pakistan Stock Exchange (PSX) and Pakistan Mercantile Exchange Ltd (PMEX).
- Stockbrokers act as a link between the stock exchanges and investors/traders like you. To be able to buy and sell shares in the stock market, you need to open a trading account with a stockbroker.
- A Depository CDC allows you to store the shares electronically, stocks you own in a dedicated account.
NCCPL plays a key role in ensuring that the process of clearing and settlement is carried out smoothly.
Introduction to Stock Market Indices
Stock market indices are indicators that reflect the performance of the market as a whole or of a certain segment of the market.
A stock market index consists of a group of companies whose shares are traded on an exchange. Each index measures the price movement and the performance of the shares of its constituent companies. This effectively means that the performance of the index is directly proportional to the performance of the stocks in the index. To put it simply, when the prices of the stocks in an index go up, that index, as a whole, also goes up.
How Indices are formed?
An index consists of similar stocks. This could be on the basis of industry, company size, market capitalization or another parameter. Once the stocks are selected, the index value is calculated. This could be a simple average of the prices of the components. In Pakistan, the free-float market capitalization is commonly used instead of prices to calculate the value of an index.
The two most common kinds of indices.
Indices are an important part of the stock market. Here’s why we need stock indices. Every stock has a different price. So, a 1% change in one stock may not equal similar change in another stock’s price. So, the index value cannot be a simple total of the prices of all the stocks. Here is where the concept of stock weight-age comes into play. Each stock in an index has a particular weight-age depending on its price or market capitalization. This is the amount of impact a change in the stock’s price has on index value.
In this method, an index value is calculated on the basis of the company’s stock price, and not market capitalization. Stocks with higher prices have greater weightages in the index than stocks with lower prices. The Dow Jones Industrial Average in the US and the Nikkei 225 in Japan are examples of price-weighted indices. There are also other kinds of weightages like equal-value weightage or fundamental weightage. However, they are rarely used by public indices.
Market Cap Weight-age:
Market capitalization is the total market value of a company’s stock. This is calculated by multiplying the share price of a stock with the total number of stocks floated by the company. It thus takes into consideration both the size and the price of the stock. In an index using market-cap weight-age, stocks are given weight-age on the basis of their market capitalization in comparison with the total market-capitalization of the index. For example, if stock A has a market capitalization of Rs. 10,000 while the index it is part of has a total m-cap of Rs. 1,00,000, then its weight-age will be 10%. Similarly, another stock with a market-cap of Rs. 50,000, will have a weight-age of 50%.
Indices in Pakistan Stock Market:
- Most recognized Index of the PSX.
- Representation from all sectors of the PSX and includes the largest companies on the basis of their market capitalization
- Represents over 85% of the market capitalization of the Exchange.
- AZEE Securities through its daily market commentary gives the highlights of the major stocks contributors in 100-Index movement.
- KSE-30 Index :
- KSE-30 Index introduced in 2006.
- The composition of KSE-30 index based on the “Free Float Methodology”
- Includes only the top 30 most liquid companies listed on the PSX.
- ALL SHARE Index:
- Consists of all the companies listed on the PSX.
Tracks the 30 most liquid Shariah compliant companies listed at PSX. KMI was introduced in September 2008. KMI comprises of 30 Companies that qualify the KMI Shariah screening criteria and are weighted by float adjusted market capitalization. 12% cap on weights of individual securities. The Rebalancing of the index is carried out biannually.
(Shariah Supervisory Board of Meezan Bank chaired by eminent Shariah scholar Justice (Retd.) Mufti Muhammad Taqi Usmani.)
- Stock market indices are indicators that reflect the performance of the market as a whole or of a certain segment of the market.
- A stock market index consists of a group of companies whose shares are traded on an exchange.
- Each index measures the price movement and the performance of the shares of its constituent companies.
- In Pakistan Stock Market, there are other indices KSE-100 Index is considered as benchmark.
- The KSE-100 index comprises the top 100 largest and most frequently traded stocks within the Pakistan Stock Exchange.
- Indices provide important information for benchmarking and help reduce your exposure to risk.
What are Stock Quotes?
You must have often seen a ticker on a business news/business channels on the TV or on the huge billboard outside the Pakistan Stock Exchange, constantly showing a bunch of letters and numbers in green or red lettering. These are stock quotes. The bunch of letters you see is a stock symbol, while the numbers that follow signify the stock price.
What are Stock Symbols?
A stock symbol is a unique code given to all companies listed on the exchange. Once you know the stock code or symbol of the company, you can easily obtain information about the company. This is important for investors who wish to conduct a financial analysis before purchasing a company’s shares. For example, PTC stands for Pakistan Tele Communications Ltd. Or PPL stands for Pakistan Petroleum Ltd. Often, it is not possible to write the full name of a company. It would take up a lot of space on the ticker board or stock board. In such a case, the stock symbol comes handy and it is just 3-4 letters. Stock quotes are available very easily. Some of most accessible avenues to get stock information are the internet and business news channels. Newspaper or business newspapers also regularly publish a list of stock quotes, called the stock table. You could alternatively access the azeetrade.com and get all the information that you wanted within a matter of seconds.
The stock board – available in financial papers and online – contains the information of all stocks. It can be a little confusing to understand. It has the following elements:
- Company Name and Symbols: The stock board needs space to fit in details of as many shares as possible. There is thus a space crunch. For this reason, company symbols, and not names, are used. On the internet, though, company’s names too are given. This helps you identify the stock.
- Stock price: This is the price an investor or trader pays to buy a single share of the company. This fluctuates constantly during market hours, and remains constant when markets are closed for trading. It reflects the value the market has allotted to the company.
- Volume: If a company has a stipulated number of shares floated on the exchange, not all of them may be traded in a single day. It depends on demand for the stock. This is understood in the ‘volume’ section of the stock quote, which shows how many stocks changed hands. A higher trading volume is usually followed by a significant change in the stock price.
- High/low: During market hours, share prices keep changing as more trades are conducted. This is because buying makes the stock more valuable, while selling makes it less valuable. This in turn affects the share price. To give an investor a basis for comparison, the stock quote mentions the highest and lowest prices the stock hit in that day. If the share price is constantly rising, the ‘high’ would keep climbing. In the same way, the ‘low’ would keep falling in a down market. Once the market closes, the difference between the highest and the lowest prices gives an idea about the volatility in the stock’s price.
- Net change: The closing price also helps calculate how much the stock’s price has changed. This change is written in both percentage as well as absolute value format. It is calculated by subtracting today’s price from the previous closing price, and then dividing with the closing price to get the percentage change. A positive change indicates the stock price has increased from the previous day. When the net change is positive, the stock is written in green color, while red color is used to denote share price has fallen.
- Close: Stock prices stop fluctuating once the market is shut for trading. The ‘close’ or the ‘closing price’ thus reflects the last price at which the stock traded. During the market hours, it represents the previous day’s closing price, again giving investor a benchmark to compare against. Since the newspaper is delivered in the morning, it reflects the price at which the stock closed the previous day.
- 52-week high/low: This shows the highest and lowest stock price in one year or 52-weeks. This too helps the investor understand the stock’s trading range over a broader period of time.
- PE Ratio: Some stock tables and quotes also mention the PE ratio. This is the amount an investor pays for each rupee the company earns. It is calculated by dividing the stock price with the company’s earnings per share. This is important because stock price is a market-assigned value. It largely depends on market sentiment about the stock, and hence may not be in synchronization with the share’s internal value. The PE ratio, thus, helps give perspective about the share’s value in comparison to the company’s financial performance. A high PE ratio means the stock is costly, while a low PE ratio means the stock is cheaply available.
- Dividend details:Companies distribute a portion of their profits to shareholders as dividends. While an investor holds the share, dividends are the primary source of income. For long-term investors, this is of great importance. This is because higher dividends mean greater returns for the investor. For this reason, many stock quotes mention the dividend yield, which helps compare the dividend with the share price. The dividend yield is calculated by dividing the dividend per share with the stock price. Higher the dividend yield, greater is the investor’s income through dividends.
- The stock market is an important avenue for investment. As an investor, you pay money and buy a few stocks, which then reap dividends over your investment horizon.
- A stock symbol is a unique code given to all companies listed on the exchange. Once you know the stock code or symbol of the company, you can easily obtain information about the company.
- The stock exchange electronically facilitate the meeting of buyers, and sellers
- Stock quotes are available very easily. Some of most accessible avenues to get stock information are the internet and business news channels. Business newspapers also regularly publish a list of stock quotes, called the stock table. You could alternatively access the AZEE Securities website and get all the information that you wanted within a matter of seconds.
- Different opinions makes a market
- News and events moves the stock prices on a daily basis
- Demand supply mismatch also makes the stock prices move
- Since the share prices of a company that’s listed on the stock exchange keep fluctuating, you can utilize the short-term price movement to your advantage.
- When you own a stock you get corporate privileges like bonus, dividends, rights etc
What are different types of Stocks?
When share prices rise, everyone wants to know what share to buy. Investors are keen to be a part of the wealth creation process. Stock markets are engines of economic growth for a country. A vibrant stock market is essential for a country like Pakistan. There are multiple ways an investor could participate.
Types of Stocks:
Stocks can be classified into multiple categories on various parameters – size of the company, dividend payment, industry, risk, volatility, as well as fundamentals.
Stocks on the basis of Ownership Rules:
This is the most basic parameter for classifying stocks. In this case, the issuing company decides whether it will issue common, preferred or hybrid stocks.
- Preferred & common stocks:The key difference between common and preferred stocks is in the promised dividend payments. Preferred stocks promise investors that a fixed amount will be paid as dividends every year. A common stock does not come with this promise. For this reason, the price of a preferred stock is not as volatile as that of a common stock.
- Hybrid stocks: Some companies also issue hybrid stocks. These are often preferred shares that come with an option to be converted into a fixed number of common stocks at a specified time. These kinds of stocks are called ‘convertible preferred shares. Since these are hybrid stocks, they may or may not have voting rights like common stocks.
- Stocks with embedded-derivative options: Some stocks come with an embedded derivative option. This means it could be ‘callable’ or ‘put able’. A ‘callable’ stock is one which has the option to be bought back by the company at a certain price or time. A ‘put able’ share gives the stockholder the option to sell it to the company at a prescribed time or price. These kinds of stocks are not commonly available.
Stocks on the basis of Market Capitalization:
Stocks are also classified on the basis of the market value of the total shareholding of a company. This is calculated using market capitalization, where you multiply the share price by the total number of issued shares. There are three kinds of stocks on the basis of market capitalization:
• Small-cap stocks:
• Mid-cap stocks:
• Large-cap stocks:
Stocks on the basis of Dividend Payments:
Dividends are the primary source of income until the shares are sold for a profit. Stocks can be classified on the basis of how much dividend the company pays.
These are stocks that distribute a higher dividend in relation to their share price. They are also called dividend-yield or dog stocks. So, a higher dividend means larger income. This is why these stocks are also called income stocks.
Growth Stocks: Not all stocks pay high dividends. This is because, companies prefer to reinvest their earnings for company operations. This usually helps the company grow at a faster rate. As a result, such stocks are often called growth stocks.
Stocks on the basis of Fundamentals:
Followers of value investing believe that a share price should equal the intrinsic value of the company’s share. They, thus, compare recent share prices with per-share earnings, profits and other financials to arrive at the intrinsic value per share.
- If a share price exceeds this intrinsic value, the stock is believed to be overvalued. In contrast, if the price is lower than the intrinsic value, the stock is considered to be undervalued.
Undervalued stocks are also called ‘value stocks’. They are preferred by value investors, as they believe the share price will eventually rise in the future.
Stocks on the basis of Risk:
Some stocks are riskier than others. This is because their share prices fluctuate more. However, just because a stock is risky does not mean investors should avoid it. Risky stocks have the potential to make you greater profits. Low-risk stocks, in contrast, give you lower returns.
Blue-Chip Stocks: These are stocks of well-established companies with stable earnings. These companies have lower liabilities like debt. This helps the companies pay regular dividends. Blue-chip stocks are thus considered safe and stabile. They are named after blue-colored chips in the game of poker, as the chips are considered the most valuable.
- Beta Stocks: Analysts measure risk – called beta – by calculating the volatility in its price. Beta values can have positive or negative values. The sign merely denotes if the stock is likely to move in sync with the market or against the market. Higher the beta, greater the volatility and thus more the risk. However, a smart investor can use this to make greater profits.
Stocks on the basis of Price Trends:
Prices of stocks often move in tandem with company earnings. Stocks are thus classified into two groups:
Some companies are more affected by economic trends. Their growth moderates in a slow economy, or fastens in a booming economy. As a result, prices of such stocks tend to fluctuate more as economic conditions change. Stocks of automobile companies are the best example of cyclical stocks.
Unlike cyclical stocks, defensive stocks are issued by companies relatively unmoved by economic conditions. Best examples are stocks of companies in the food, beverages, drugs and insurance sectors. Such stocks are typically preferred when economic conditions are poor, while cyclical stocks are preferred when the economy is booming.
How to Open Stock Trading Account?
Initially, stocks and shares used to be exchanged via physical receipts called certificates. However, this resulted in lengthy paperwork and took up a lot of time. To counter this and to take advantage of an electronic trading platform. These accounts are of crucial importance today because, the entire financial platform of investing, trading and maintaining have become digitized. Hence, to enable the user with a seamless and straightforward experience, online trading accounts are the necessity of the day. These accounts are essential to trade in Pakistan Stock Exchange.
Most often, stock broking firms have thousands of clients. It is not feasible to take physical orders from every client on time. So, to make this process seamless, you open a online trading account. Using this account, you can place buy or sell orders either online or phone, which will automatically be directed to the exchange through the stock broker.
Before you buy and sell on the stock market, you might want to read about How to analyze the stock market and more.
Step by Step Guide on How to Open a Trading Account
Opening a trading account online opens up a host of investing possibilities. You must be wondering how to open a trading account. You can open a trading account in a few simple steps.
First, select the stock broker or firm. Ensure that the broker is good and will take your orders in a timely manner. Remember, time is of utmost importance in the stock market. Even a few minutes can change the market price of the stock. For this reason, ensure that you select a good broker like AZEE Securities.
- Get in touch with Customer Relationship Officer +9221-111-293-293 of AZEE Securities or visit the nearest branch office to opening a trading account. You may also visit our website AZEE Securities to download the account opening form.
- Next, after enquiring about the trading account opening procedure. Fill up the account opening form and the Know Your Client (KYC) form. Read here to know more about the KYC details. A representative from the brokerage firm will assist you with the process.
- Fill these forms up. Submit along with Copies of valid CNIC/CNICOP for the Account holder along with Nominee of Account holder also and proof of your income and address.
- You will be requested for bio-metric thumb impression in person for NADRA verification. Besides IBAN # of your bank account and Mobile number has to be on your name to generate your UIN.
- Your application will be verified either through an in-person check or on the phone, where you will be asked to divulge your personal details.
- It generally takes 2-3 days to activate the trading account after the completion of the verification process, you will be given your trading accounts details. Congrats, you will now be able to conduct trades in the stock market.
Documents required opening trading account:
Just like the procedure for opening a trading account, you need to submit proofs of income and address along for opening a trading account.
• You need to submit Copies of valid CNIC/CNICOP for the Account holder along with Nominee of Account holder also.
• KYC form declaration along proof of income.
• Proof of address
• Zakat Declaration Form duly attested copy from notary public in-case of non-payable.
• Mobile Number Ownership
• Online bio-metric thumb impression with Centralized KYC.
An investor can open the account online in no time through any financial institution. There are various options available to open the account online; one such option is of AZEE Securities. However, opening an account comes with its fair share of charges which would involve an annual maintenance fee, a transaction fee or commission for every transaction carried out by the broker. Additionally, a fee charged for CDC of the shares.
How to Place Orders:
You can easily buy stocks through azeetrade.com, one of Pakistan's leading retail stock brokers, with a variety of services and products to cater to all your investment needs at very reasonable brokerage rates. Once you are registered with us, you can trade using the AZEE Securities website, our mobile trading app, our desktop trading application, or through the phone using our Call & Trade facility.
Different Types of Order:
You can place different kinds of orders such as market orders, limit orders, stop loss orders, , after-market orders (AMOs), etc.
A market order is an order to buy or sell a stock at the current market price. However, as market prices keep changing, a market order cannot guarantee a specific price.
A limit order is an order to buy or sell a share at a specific price. To avoid buying or selling a stock at a price higher or lower than you wanted, you need to place a limit order rather than a market order.
Stop loss order:
A stop loss order is a normal order placed to sell a stock when it reaches a certain predetermined price called the trigger price. Sometimes the market movements defy your expectations. Such market reversals often result in loss-bearing transactions. The stop loss trigger price is your defense mechanism.
Cancel order allows to buy or sell a stock as soon as the order is released into the market, in case order failed to full fill the total quantity it will be removed from the market.
Short Sell Order:
At any point of time when the shares are sold and the same are not delivered to the exchange called short sell. Short selling is not legally allowed in the Regular Market. Although short sell could be executed in the future contract but through separate window i.e. through F8 window option.
AZEE Securities has developed various trading platforms to suit the needs of different types of investors. Some investors need different types of charts and financial data, while some investors need just research reports. Depending on the level of investor’s sophistication, AZEE offers different next generation platforms.
o Stock markets have become electronic. This means, trading is conducted online. Today, you need a CDC- Sub Account and a Trading Account to invest in the stock market.
o First, Get in touch with our Customer Relationship Officer of AZEE Securities or visit website AZEE Securities to download the account opening form.
o Next, Fill up the account opening form and the Know Your Client (KYC) form.
o Submit along with Account holder’s proof of address & employment/business.
o Your application will be verified either through an in-person check or on the phone.
o Once processed, you will be given your trading accounts details. you will than be able to conduct trades in the stock market.
What is Roshan Digital Pakistan Account?
The movement of people is a hallmark of the globalized world. People migrate to other countries in the search for better opportunities and contribute to their home country through remittances. Pakistanis are one of the biggest expat communities in the world, working and living in multiple countries. At the end of 2018, around 10 million Non-Resident Pakistani’s and People of Pakistan Origin were estimated to be residing outside the country. Pakistan’s living outside the country remit billions of dollars every year back to the country. In 2019-20, Pakistani’s sent back $24 billion in remittances, which was highest so far.
Overseas Pakistani’s and Non-Resident Pakistanis (NRPs) are allowed to purchase stocks and convertible debentures of a domestic organization through stock exchanges. Such investments can be made under the Portfolio Investment NRP either on repatriation or non-repatriation basis.
Many factor’s that entices NRPs to invest in Pakistan Stock Market for better returns and growth prospects. NRP’s investments are allowed in Pakistan stock market through an entirely digital and online process without any need to visit a bank branch, embassy, or consulate. Roshan Digital Account is a unique opportunity for Overseas Pakistanis to open an account online with any designated bank from the comfort of their homes.
- The customer can choose either foreign currency or rupee dominated account, or both. Funds in these accounts will be fully repatriable, without the need for any regulatory approval.
- Non-Resident Individual Pakistani, Pakistan Origin Card holders & Employees or officials of the Federal or Provincial Governments posted abroad are eligible to open Roshan Digital
- Pakistan Account.
- Roshan Digital Account to be opened in 48 hours, if everything is in order.
- No minimum balance requirement.
Why a Non Resident Pakistani’s should Invest:
Here are key factors why you should invest and seek the best investment opportunity in Pakistan for Overseas Pakistani’s.
Prepare for Retirement:
Preparing for your old age starts today. Well, it should actually have started yesterday already. You need to put money away in in different forms of investment to ensure a secure retirement plan. The amount of money you save and invest will determine the standard of living you can afford when you retire.
Money used correctly will make more money. Investing money is a good example of this. Whatever you invest will grow according to the interest rate or growth rate on your Roshan Pakistan Investment in Pakistan. Invest wisely to ensure good returns without taking a risk you can’t afford.
Send Money to Family:
Your current salary is probably enough to help you and your immediate family. But, when you invest with “Investment in Stock Market” option you’ll have more income to spend. You can send some of your extra income to family members back home. Better yet, dollars converted to rupees may give your family the help they need.
Build Financial Assets:
Investing helps to grow your financial wealth and build up financial assets. The best investment for Overseas Pakistani’s in Pakistan will help to grow your financial assets the fastest.
Steps to be followed to Open Roshan Digital Account:
1. Non Resident Pakistanis can visit any of the designated bank’s online portal for Roshan Digital Account fill out Basic Information Form & submit the same.
2. After you have submitted your application, a bank representative will contact you within 2 working days to guide you through the account opening process.
3. After opening bank account, the bank will provide NRP the option to select “Investment in Stock Market” on your bank’s portal / website /app. With the following three further steps, you can start investing in Pakistan Stock Market through Roshan Digital Account:
a. Click on the ‘Consent’ tab to share Roshan Digital Account details with Central Depository Company (CDC) and other Capital Market entities
b. Click ‘I Agree’ to Terms and Conditions for Investing in Pakistan Capital Market
c. Select broker just like AZEE Securities as your preferred broker.
4. The brokerage house will perform their own due diligence and confirm to NRP and CDC regarding the opening of the Trading Account (CKO is exempted for all such accounts) within 24 hours/one business day. The acknowledgement mail from CDC and if your information/credentials were found complete and correct, you will receive an Account Opening Package email from CDC, comprising of the following actions and details:
• Opening of your Trading Account with Stock Broker.
• Creation and Registration of your Unique Identification Number (UIN).
• Opening of your Custody Account (CDC Account).
• Activation of Direct Settlement Service (DSS) in your Investor Account (if you have opted for the same).
• Creation of your CDC Web Access Login ID and Password
Before you initiate your first trade, you have to initiate a Fund Transfer request from your Roshan Digital Account to CDC Bank Account maintained with your bank (details of which were provided with the Account Opening Package). As a Non Resident Pakistani, you can invest in Pakistan stock markets through the RDA regulated platform of CDC. Before investing in Pakistan stock markets the NRP can also make use of online portals to their investment strategy. Learn about share market terminologies, basics of stock market, trading requirements and all you need to know about Pakistan Stock Market at Knowledge Centre for Non Resident Pakistani’s.
Pakistan being one of the growing economies serves as the most promising investment destination in the world. The stable security environment has made Pakistan even more favorable for investment purposes. Vibrant and well regulated capital markets coupled with developed banking system has further enhanced the entire scenario.
AZEE Securities offers all the best investment options in Pakistan for Non Residents Pakistani’s by way of providing highest standards of services.
You may ask for more details from our dedicated help desk +9221-111-293-293 or drop an email email@example.com.
What are IPO and Investor’s
You may have often come across that a certain company has decided to launch an IPO. Be it in the newspapers or during your conversations with your office colleagues, you may have heard about the term IPO.
First understand what an IPO is. Just to initiate you, it is an abbreviation of initial public offering. An Initial Public Offering - IPO is essentially a process by which a privately held company offers its shares out to the public for the first time. Basically, this is the time when a private business decides to go public and get listed in the stock exchanges.
How Do Businesses Raise Funds in the Primary Market?
In the world of finance, the Initial Public Offering (IPO) of a company is commonly known as the primary market.
There are four common ways:
They can sell securities to the public through a public issue.
They can offer new securities to existing shareholders through a rights issue.
- They can approach institutional investors through private placement.
- They can sell securities to select investors through preferential allotment.
- (In this case, the price of the security may or may not match its market value.)
Keep in mind that many businesses approach large institutional investors during IPOs. In such a case, small investors may not be able to buy securities through the primary market. However, once the securities have been sold, they can be traded freely on the secondary market.
What is a Secondary Market?
Here, the trade in securities occurs via a stock exchange. Instead of the issuer, the current holder of the security sells the security to a new buyer. The seller typically aims to sell the security at a price that is higher than his purchase price.
The Secondary Market can be of two types:
- An auction market is a physical location where buyers and sellers gather. They state the rate at which they are willing to buy or sell the securities. All the information is public. As an investor, you can take a call accordingly.
In a dealer market, the trade happens electronically (e.g. through fax or telephone). Here, a dealer serves as the middleman and carries a security inventory. He aims to make a profit on the transaction. So, you may need to shop around to get the best prices.
|Points of Difference
||Issuer of security and buyer
||Holder of security and buyer
|Aim of Sale
||To raise funds for the corporate entity
||To earn a profit for the holder of the security
That’s not all. How you invest in both the markets also differs. Let’s read that next.
Who can invest in an IPO?
There are different types of investors:
Institutional investors - The underwriter will try and sell large chunk of these share to a handful of its institutional clients like insurance companies, mutual funds etc. at a lucrative price before the IPO. A lock up contract with such institutional investors varying from 90-180 days ensures minimal volatility on the day of IPO.
• High net worth individuals (HNIs) – Individual investors looking to invest more a value of more than PR 1,000,000 are categorized as HNIs. The allotment of shares to HNIs is proportionate and falls under 10 – 15%.
• Retail investors – The class of investors subscribing in an IPO for a minimum 500 shares of or less fall under this category. The probability of getting an allotment is higher under the retail quota as SECP has designed the allotment method in a way that maximum retail investors are included. Allocation under the retail quota is nearly 25-35%.
Before the IPO process, If you happen to read through a prospectus or an IPO document, you’d come across plenty of jargons. Knowing what these terms they mean can be of immense help to you as an investor, since it allows you to better understand the issue. So, here’s a glimpse of some of the key IPO-related terms that you need to know.
The date on which the IPO issue opens up for subscription is commonly known as the offer date.
Typically, in an IPO issue, the company issues a price range with an upper and a lower ceiling limit. This is what is known as the price band. The IPO applicants have the freedom to choose any price as they deem fit from the issued price band.
The price within the price band that gets the highest number of bids from applicants is generally fixed by the company as the cut-off price. Any bids below the cut-off price are automatically not considered for the IPO allotment process.
The lot size is the minimum number of shares that you can make a bid for in an IPO. Any bids that you intend to make should always be a multiple of the lot size. For instance, if the lot size of a company’s IPO is 500, you cannot make a bid for a lesser number of shares than 500. But if you wish to bid for more, it has to be in multiples of the lot size, say, 1,000 or 1,500 or even 2,000.
An IPO issue is said to be undersubscribed when the number of bids received from the public is less than the total number of shares in the issue. For instance, if the number of shares up for sale in an IPO issue is 500,000 and the number of bids received from the public is 430,000, the IPO issue is said to be undersubscribed.
An IPO issue is said to be oversubscribed when the number of bids received from the public is higher than the total number of shares in the issue. For instance, if the number of shares up for sale in an IPO issue is 500,000 but the number of bids received from the public for those 500,000 shares is 1,000,000, the IPO issue is said to be oversubscribed by 2 times.
Also called the over allotment option, green shoe is essentially an agreement that allows the company to issue additional shares (usually 15% of the issue size) in the event of an oversubscribed IPO issue. Why is it called a green shoe? The term is derived from the name of the first company, Green Shoe Manufacturing, which permitted underwriters to use this practice in an IPO.
o An Initial Public Offering is essentially a process by which a privately held company offers its shares out to the public for the first time.
o The issuing company then receives the entire proceeds generated on account of the public buying its shares.
o In the world of finance, the Initial Public Offering (IPO) of a company is commonly known as the primary market.
o Once an IPO allotment process concludes and the shares are listed on the stock exchange, they move from the primary market to the secondary market.
o Right from the listing day, the shares of the company are publicly traded on the stock exchanges.
o Once the shares move from the primary market to the secondary market, the company is no longer a part of the picture. The trade happens between you and another person, who currently owns the shares.
o When you participate in an IPO, you essentially get early access to the shares of a company.
o By investing in an IPO, you get to be a part of and enjoy the value appreciation process of the company’s shares right from the start.
o The date on which the IPO issue opens up for subscription is commonly known as the offer date.
o In an IPO issue, the company issues a price range with an upper and a lower ceiling limit, known as the price band. The IPO applicants have the freedom to choose any price as they deem fit from the issued price band.
o The price within the price band that gets the highest number of bids from applicants is generally fixed by the company as the cut-off price.
o The lot size is the minimum number of shares that you can make a bid for in an IPO.
o An IPO issue is said to be undersubscribed when the number of bids received from the public is less than the total number of shares in the issue.
o An IPO issue is said to be oversubscribed when the number of bids received from the public is higher than the total number of shares in the issue.
o Also called the over allotment option, green shoe is essentially an agreement that allows the company to issue additional shares (usually 15% of the issue size) in the event of an oversubscribed IPO issue.
How can you invest in IPOs?
After spending much time trying to understand IPOs, we’ve finally reached the main crux of this module. In this chapter, we’ll not only learn how to invest in an IPO, but also take a look at the evaluation process that you need to conduct as an investor. Let’s jump right into the chapter.
What should you do before investing in IPOs?
Investing in an IPO is the easy part. Try to assess whether an IPO is worth investing. Assume that you wish to invest in the IPO of Agha Steel Industries. Before you start mobilizing your funds for investing, there are some key things that you need to do.
The very first thing that you should do when an IPO comes out is read through the entire prospectus from cover to cover. This little booklet contains almost everything you need to know about the company. Right from the details of the IPO issue down to the company’s financials, every important piece of information is included.
For instance, let’s take up ASIL’s prospectus to quickly analyze its contents. Here’s a brief look at some of the information about the issue that you’re likely to find on the opening page of the prospectus.
|Number of shares up for subscription
||120,000,000 equity shares
|Face value of each equity share
|Issue price band (book building)||Rs. 30 – Rs. 42 per share |
|Total Offer Book Building 75 % of the issue||90,000,000 shares |
|Total Offer Book Building 25 % of the issue||30,000,000 shares|
|Offer opening date||Wednesday, Oct 14, 2020 |
|Offer closing date||Thursday, Oct 15, 2020|
The rest of the prospectus goes into detail about the company, the risk factors involved, financial information, legal information, terms and structure of the offer, and other information.
Examine the Financials of the Company:
Once you’ve made a preliminary read of the prospectus, the next step is to take an in-depth look at the attached financial statements of the company. This will throw some light on the performance of the company and help you take a call on whether to invest in the IPO or not.
Do a Valuation Exercise:
Once you’ve extensively analyzed the fundamentals of the company and have decided to invest in the IPO. But has the IPO been priced fairly? To find that out, we move on to valuation. Is that the right price to pay for the company’s shares? Or, is it set too high? A simple analysis using the discounted cash flow (DCF) method or any other valuation method will give you the answer to these questions.
Read Analyst Reports
You thought analysts give reports only on companies that are already trading on the exchanges? Turns out that they also compile research reports on upcoming IPO issues as well. You can make full use of analyst reports to support your decision to invest in the company’s IPO.
While analyst reports can be a great way to gain information about a company that you might have missed during your own analysis, it is not a good idea to rely entirely on those reports to base your investment decision.
How to Invest in IPOs?
As you already know by now, a CDC Sub Account is mandatory for purchasing or selling shares of companies. Similarly, before you can invest in an IPO, you need to first make sure that you possess a CDC Sub Account. Once your CDC Sub account is active, you can proceed to invest in IPOs by using one of two ways - through your trading account.
Investing in IPOs through a trading account
If you’re an investor who possesses a trading account with a stock broker, you can apply for an IPO itself. At AZEE Securities, we have made the entire IPO application process extremely simple. Applying for an IPO through your trading account is so simple that it hardly takes more than 5 minutes to complete the process. All it requires download the IPO form www.azeetrade.com/ipo and after filling the form submit with designated branches near you along with Payees Cheque on the name of IPO Company. However if you are not having bank account any of the listed banks then you may get pay order from any of the designated bank in favour of IPO company.
Investing in IPOs through a bank account
You can quickly and easily apply for an IPO using just your banks account (provided if you are account holder of any of the listed bank). In this process if you have no trading account with any brokerage house you could still subscribe IPO. All it requires download the IPO form www.azeetrade.com/ipo and after filling the form leave the CDC Sub Account/Investor Account box blank, submit with designated branches near you along with Payees Cheque on the name of IPO Company. However if you are not having bank account any of the listed banks then you may get pay order from any of the designated bank in favour of IPO company. In this case you will be receiving Share Certificates in the physical form from the same very bank branch where did you subscribed IPO. However for selling purpose you still need to open an account with any brokerage house prior to that same share certificate got to be converted into CDC format at first place then transaction can takes place.
o Before investing in IPOs, there are some key things that you need to do.
1. Read through the prospectus
2. Examine the financials of the company
3. Do a valuation exercise
4. Read through the analyst reports
o The prospectus contains almost everything you need to know about the company. Right from the details of the IPO issue down to the company’s financials, every important piece of information is included.
o The prospectus also goes into detail about the company, the risk factors involved, financial information, legal information, terms and structure of the offer, and other information.
o Once you’ve made a preliminary read of the prospectus, the next step is to take an in-depth look at the attached financial statements of the company.
o Analysts also compile research reports on upcoming IPO issues as well, which you can use to support your decision to invest in the company’s IPO.
o While analyst reports can be a great way to gain information about a company that you might have missed during your own analysis, it is not a good idea to rely entirely on those reports to base your investment decision.
o Conduct your own thorough analysis and compare the results with those of the analysts. This way, you can arrive at fairly accurate results.
o Before you can invest in an IPO, you need to first make sure that you possess a CDC Sub Account/Investor Account.
o You can invest in IPOs either through a trading account or through a bank account directly in physical form.
o Once you’ve successfully completed the IPO application process and upon the closure of the bidding date, the share allocation process takes place.
Some of the stock market terminology and concepts you would frequently hear with respect to the Stock Markets are:
Stock exchanges are financial intermediaries that connect buyers and sellers and facilitate a trade of the stocks listed on that exchange. In Pakistan, there are two principal exchanges - the Pakistan Stock Exchange (PSX) and the Pakistan Mercantile Exchange (PMEX).
Stockbrokers are financial intermediaries who play a major role in the stock markets. These entities are registered & licensed with the Stock Exchange & SECP as trading members. They act as a link between the stock exchanges and investors/traders like AZEE Securities. To be able to buy and sell shares in the stock market, you need to open a trading account with a stockbroker.
A market order is an order to buy or sell a stock at the current market price. It signals your broker to execute the order at the best price currently available. However, as market prices keep changing, a market order cannot guarantee a specific price.
To avoid buying or selling a stock at a price higher or lower than you wanted, you need to place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price. You could use a limit order when you want to set the price of the stock. In other words, you want to sell/buy particular scrip at a price other than the current market price. However, although a limit order guarantees a price, it cannot guarantee execution of the trade. This is because the stock might not reach the desired price on that particular trading day owing to market-related factors.
Stop Loss Order:
A stop loss order is a normal order placed with a broker to sell a security when it reaches a certain predetermined price called the trigger price. Sometimes the market movements defy your expectations. Such market reversals often result in loss-bearing transactions. The stop loss trigger price is your defense mechanism – an amount at which you will be able to sustain yourself against such unanticipated market movements.
Advances & Declines:
Advances and declines give you an indication of how the overall market has performed. You get a good overview of the general market direction. As the name suggest 'advances' inform you how the market has progressed. In contrast, 'declines' signal if the market has not performed as per expectations. The Advance-Decline ratio is a technical analysis tool that indicates market movement.
A share is a portion of the company and when the company makes profits, you often receive a part of it. This is the idea behind dividends. Every year, companies distribute a small amount of profits to investors as dividends. This is the primary source of income for long-term shareholders – those who don’t sell the stock for years together.
Different companies issue varied amounts of shares when they get listed. The value of one share also differs from that of another company’s stock. Market capitalization smoothens out these differences. It is the market stock price multiplied by the total number of shares held by the public. It, thus, reflects the total market value of a stock taking into consideration both the size and the price of the stock. For example, if a stock is priced at Rs. 50 per share, and there are 1,00,000 shares in the hands of public investors, then its market capitalization stands at Rs. 5,000,000.
Market capitalization matters when stacking stocks into different indices. It also decides the weightage of a stock in the index. This means, bigger the company’s market value, the more its price fluctuations affect the value of the index.
Stock Market Indices:
Stock market indices are indicators that reflect the performance of the market as a whole or of a certain segment of the market. A stock market index consists of a group of companies whose shares are traded on an exchange. Each index measures the price movement and the performance of the shares of its constituent companies.
Clearance and Settlement:
Clearing is the process of updating the accounts of the trading parties and making arrangements for the transfer of the funds and the securities. Settlement is the process of the actual exchange of money and securities between the parties involved in the trade.
Circuit Breakers and Trading Bands:
Some stocks are more volatile than others. Too much volatility is not good for investors. To curb this volatility, SECP has come up with the concept of circuit breakers. The market regulator has specified the maximum limit the price of a stock can move on a given day. This is called a price trading band. If a stock breaches this limit, trading is halted in that stock for a while. There are three levels of limits. Each limit leads to trading halt for a progressively longer duration. If all three circuit filters are breached, then trading is halted for the rest of the day.
Bull & Bear Markets:
Markets are often described as ‘bull’ or ‘bear’ markets. These names have been derived from the manner in which the animals attack their opponents. A bull thrusts its horns up into the air, and a bear swipes its paws down. These actions are metaphors for the movement of a market: if stock prices trend upwards, it is considered a bull market; if the trend is downwards, it is considered a bear market.
Many traders trade on the stock market using borrowed funds or securities. This is called margin trading. It is almost like buying securities on credit. Margin trading can lead to greater returns, but can also be very risky. While it lets you actively seize market opportunities, it also subjects you to a number of unique risks such as interest payments charged for the borrowed money. AZEE Securities offers its customers the facility of margin trading.
Rupee-cost averaging is a concept when you buy a stock in small bunches, instead of buying in lump-sum. This helps reduce the average cost of your investment.
Let us use an example. Suppose you bought 100 shares of a company costing Rs. 10 each, your total investment cost is Rs. 1000. Instead of that, if you buy 50 shares for Rs. 100 and 50 for Rs. 95, your total cost of investment would be lower. Not just that, even your average cost per share would be lower. This is called rupee-cost averaging.
Stock prices constantly fluctuate. This is because the demand for the stock changes. As more stocks change hands, greater is the change in its share price. This is called stock volatility. Even the amount of volatility in the market changes on a daily basis. To measure this volatility, the Pakistan Stock Exchange introduced the KSE-100 index is an indicator of stock price trends.
Price-Targets and Stop-Loss Targets:
As an investor, to maximize your profits, you need to get your pricing right – both when it comes to buying and selling. However, sometimes, prices fluctuate more than expected. So, it can become a little difficult to gauge whether to trade now or wait a little more. This is where stock recommendations help.
Analysts put out price targets and stop-loss measures, which let you know how long you should hold a stock. A price target indicates that the price of share is unlikely to climb above the level. So, once the share price touches the target, you may look to sell it and pocket your profits. A stop loss, meanwhile, acts as a target on the lower end. It lets you know when to sell before the stock falls further and worsens your loss.
Insider trading is 'the trading of shares based on knowledge not available to the rest of the world’. It is illegal to trade after receiving 'tips' of confidential securities information.
This applies to corporate personnel as well as traders and brokers. This is why company management have to report their trades to the exchange. This applies to employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded. Even government employees, who trade after learning of such information, are considered to have broken the law on insider trading. It is a punitive offence.
After Market Order:
Though you cannot trade when the markets are shut, but you can place orders. Such orders are called After-Market Orders. AMO is for those customers who are busy during market hours but wish to participate. When you place an AMO, you have to keep in mind the closing price of the stock. You can choose a price which is 7.5% higher or lower than the closing price. That said, your order will be processed as soon as the market opens the next day at the opening price if it falls within this 7.5% band.
AMOs come handy when you need time to plan your orders after conducting research. During market hours, you need to actively track the price as it is constantly fluctuating. This is not the case for AMOs.
You cannot invest without conducting research. Often, many analysts and brokerage firms undertake their own stock market research keeping in mind the economy, industries, currency valuation, and so on. They often use public data from institutions like the State Bank of Pakistan, National Bureau of Statistics and speak to experts as part of their research. This is not easily possible for retail investors. As a result, findings of such research are extensively followed by investors, which also give a buy or sell recommendation for specific stocks.
Stock prices move in trends – an upward and a lower trend. During periods of bear markets, prices keep falling. However, there will come a time when the market starts to look cheap. This is when it starts to rise again as people start buying slowly. This phenomenon when the market free-fall ends and the rise begin is called bottoming out.
Similarly, on the higher end, there will come a point when too much buying has made the stock costly. Traders then start selling in droves to book profits. So, the price does not rise beyond this level. This is called 'peaking'.
Intraday Trading Guide for Beginners
Intraday trading, also called day trading, is the buying and selling of stocks and other financial instruments within the same day. In other words, intraday trading means all positions are squared-off before the market closes and there is no change in ownership of shares as a result of the trades.
People perceived day trading to be the domain of financial firms and professional traders. But this has changed today, thanks to the popularity of online trading and margin trading.
Today, it’s very easy to start day trading, understand the basics of intraday trading:
Though this trading is quite risky because of market volatility, one can earn excessive profits if he/she knows the market conditions and stay alert in every passing second.
Beginners Guide for Intraday Trading:
Many traders get mistaken on intraday trading and do it in the same way as simple trading in the stock market. However, it’s a completely different affair of managing charts within the risk parameters set. You surely need to be careful while doing intraday trading.
o Intraday trading promises high returns and thus may sound very attractive. But it also carries a higher risk compared to the delivery segment. So if you have a day job that requires your full attention for most of the trading hours, you may want to avoid intraday trading. For one, you have to watch the market and time your trades to perfection. Secondly, you need a good understanding of and time to perform technical analysis on daily charts to make the right decisions.
o You need to trade in the intraday segment using the right broker, one who offers you with research support as well as technical support. Having the right tools is crucial to maximise for intraday trades. Given the high frequency of transactions, One option you can consider is the Intraday Trade option from AZEE Securities. It allows you to execute intraday trades at with all relevant support & research.
o Be a smart one and pick stocks with due diligence. Do in-depth research, and put aside the unstable shares, likewise the most stable shares as well. These sorts of shares can bring a full stop to your career. So, be careful while choosing them.
o Stop losses are quite important. Without it, intraday trading is not possible. If you avoid trading, then also you need to have a clear plan on conditions.
o Market trends are real knowledge providers that help you grow perfectly. It's important to understand trade and market trends in a proper way to excel at it.
o Timing is of utmost importance. The profitability and movement are needed to keep within the time that you spending in the stock exchange. If you are going through proper timing, then surely you can win the race.
What is 'Value Area' And Why Does it Matter?
As an intraday trader, you want to pick the market direction early. The simplest way to do this is by identifying the 'value area' for the stocks you target to trade in. This can help you make a trade decision.
Experts call this 'The 80% rule'. Value area is the range of price where at least 70% of previous day’s trade took place. Once you have identified this area, observe where the price opens for the day. The rule states that if the price starts below the range and stays there for the first hour, then there is an 80% chance that it will rise into the area.
On the other hand, if it starts above the value area and stays there for the first hour, there is an equal chance that the price will fall into the area.
This gives us the most basic intraday trading strategy if the stock starts above and stays there, you may want to take a short position near the top of the value area. Similarly, if the stock starts below the value area and stays there for an hour, you can take a long position near the bottom of the value area. Remember, these are thumb rules. Don't consider this as a recommendation.
o Intraday trading, also called day trading, is the buying and selling of stocks within the same day.
o Intraday trading offers high returns and may sound very attractive. But it also carries a higher risk compared to the delivery trade.
o Before carrying out intraday trade one needs to ensure complete research of stocks and technical levels.
o Stop loss is the key to limit your risk before taking intraday positions.
o Market trends are also important to consider to start day trading.
o Intraday trading basic strategy is timing when you take your position.
How to Select Intraday Trading Stocks
Day trading stocks today is dynamic and exhilarating. On top of that, they are easy to buy and sell. With the world of technology, the market is readily accessible. The liquidity in markets means speculating on prices going up or down in the short term is absolutely viable.
The trading platform you use for your online trading will be a key decision. You need advanced charting & Trading Analytics to automate your trading strategy.
To succeed as an intraday trader, you need to identify the right stocks to trade in. Once you have identified a selection of stocks, you can then monitor and analyze these further to identify trends. The entry and exit strategies are dictated by the trends you observe.
First step of the process on how to choose stocks for intraday trading:
Liquid stocks are those that have a large volume trading through the day. The single most important criterion when choosing to trade intraday is to find stocks that are liquid. This is important for two reasons:
You can buy and sell large volumes without impacting the trend you want to benefit from.
The trades you line up have the potential to be executed quickly. As intraday trading depends on precise timing, avoiding any delay in execution is paramount to success.
Medium to High Volatility:
Intraday success depend on daily price movements. If you end up trading stocks that have a sticky price, you will not find an opportunity to trade them profitably. Therefore, you have to select stocks that experience a price movement almost every day.
You can filter the stocks based on movements either in percentage terms or the Rupee value of the stock. This filtration can typically give you different sets of stocks. As a rule of thumb, experts suggest choosing stocks that move at least 3% per day on an average.
To succeed as an intraday trader, you must be able to correctly predict the price movement in the short term. To improve chances of success, you can choose stocks that follow the group trends and indicators closely. For example, if you want to trade stocks from the Oil sector, choose those that show a strong correlation with the PKR vs. US$ movement. For more such intraday trading indicators
Trade With the Trend:
While some traders specialize in contrarian plays, most traders prefer and recommend trading in intraday with the trend. Meaning, an intraday trader has to identify the waves of a stock market trend and then try to ride on these waves. This can be possible by conducting intraday trading time analysis.
For example, if you see that the market is rising, you can try to select stocks that offer opportunities to take long (buy) positions. In contrast, in a falling market, traders can try to spot and take short positions where possible. The bottom line is to avoid challenging the market.
Strong Stocks Vs. Weak Stocks:
Once experts identify liquid stocks that move with the trend, they then divide them into relatively strong stocks and weak stocks. Strong stocks are ones that move in the same direction as the market, but more intensely. For example, if the market rises by, say, 1%, then a strong stock tends to rise higher—say 2-3%. Weak stocks, in contrast, tend to rise/fall at a slower pace than the market. Experts usually prefer strong stocks in an uptrend and weak stocks in a downtrend to lower the potential for loss.
But remember, it’s better to avoid trading when there’s a weak or no trend in the market. After all, stock markets are not always trending. Sometimes they stall as well. When that happens, consider being patient and waiting for markets to trend again.
Tips for Picking The Right Stocks:
Volume traded: Look at the total number of shares being traded within a particular timeframe. This will tell you about the volumes being bought and sold. Intraday traders should pick stocks that trade in high volumes.
Trending stock: Is there buzz around a particular stock? Such stocks could offer lucrative opportunities to day traders. They are likely to show momentum in one or the other direction, along with good trading volumes.
Recent analysis: Look at how stocks on your shortlist have performed over the last week or two. Has the closing price been consistently positive or negative over the period? Assess the likely movement for the day before placing a buy or sell order.
Breakout stocks: Keep an eye on the resistance and support levels of your chosen stocks. The resistance level is the price beyond which a stock is not expected to rise. Meanwhile, the support level is the price beyond which a stock is unlikely to fall. Does a stock show signs of breaking out of these levels? Capitalize on the breakout to book quick profits.
Gainers and losers: Most brokers will highlight the top gainers and losers of the day. Track the movements of these stocks closely as you decide on your intraday positions.
Monitor select stocks: Thousands of stocks are traded on the stock exchange. Day traders cannot possibly keep tabs on them all. That is why most traders focus their attention on a few shortlisted stocks. By researching these stocks thoroughly, the trader can grab profitable opportunities as they arise.
o Online trading platform you use for your trading will be a key decision. You need advanced charting & Trading Analytics to automate your trading strategy.
o To succeed as an intraday trader, you need to identify the right stocks to trade. Once you have identified a selection of stocks, you can then monitor and analyze these stocks further.
o Liquid stocks are those that have a large volume trading through the day are important criterion when choosing to trade intraday.
o As intraday trader, you must be able to correctly predict the price movement and to improve chances of success, you can choose stocks that follow indicators closely.
o Trending Stocks could offer lucrative opportunities to day traders, show momentum in one or the other direction, along with good trading volumes.
o The top gainers and losers of the day & track the movements of these stocks closely as you decide on your intraday positions.
o Day traders cannot trade in all the listed stocks therefore always choose select stocks by research to take positions.
Intraday Trading Tips & Strategy
Intraday traders experience higher volatility than long-term investors. However, with the right knowledge, you can make the most of your intraday trading money.
Many seek trading tips for intraday to improve their chances of success. However, we suggest opting for intraday recommendations, not trading tips for intraday. That’s because what you need is a strong intraday trading strategy, not merely tips for intraday trading.
Here are some free intraday trading tips for today for a successful intraday trading tomorrow
1. Choose Liquid Stocks:
As you know by now, intraday trading involves buying and selling a set of shares on the same day before market closing, i.e., squaring off open positions. However, for the ex-change to execute these orders there has to be enough liquidity in the market. Thus the first tip of the free intraday tips for today is to avoid stocks that may not be liquid enough. Otherwise, your squaring off order may not get executed, forcing you to take delivery in-stead.
Further, avoid investing all your trading money in a single stock. Experts recommend di-versifying your intraday positions across a handful of stocks. This can help balance your intraday trade strategy and minimize your risk.
2. Freeze the entry and exit price
Many stock investors and traders suffer from buyer’s misconception. This is when the buyer immediately has a change of mind after purchase. The buyer suddenly feels that the selection was not as good as she/he believed at the time of purchase. As a result, they may take a wrong decision once they have bought a stock. All you need to do to avoid such mistakes is to follow this tip. Decide the entry and exit price before taking a position. This ensures that you have an objective view.
3. Always set a stop-loss level
It is quite possible that the share you chose falls on the day you trade instead of rising. Therefore, it is important that you decide how low the stock can be allowed to fall before you square-off the position. This acts as a safety net and helps minimize your losses. Most experts would suggest this is the most important tip for intraday trading. Research intraday calls, which are buy and sell recommendations, and set a stop-loss level.
4. Book profit when the target is reached
The secret to successful intraday trading lies in the high leverage and margins that traders enjoy. Leverage and margins help amplify profits (as well as losses). But the trick lies in not getting greedy once that target is reached. Avoid falling into the trap, where you hope that the price will keep rising (or falling, if you short-sell). But, if there is good reason to believe that the price is likely to move in the right direction, then adjust the stop-loss accordingly. Looking around for intraday calls can be a good option before you decide to adjust the stop-loss.
5. Always close all your open positions
Another tip for today is to always close all your open positions. Many intraday traders choose to take delivery of the shares if the stock price target they set at the start of the day isn’t met. This may not be a good strategy. After all, the stocks were bought for intraday trading basis market trends and technical analysis of the stock movements. They may not be good enough for a long-term investment. So before converting to delivery look at the intraday calls and the fundamental strength of the stock.
6. Do not challenge the market
It is near impossible to predict market movements. Often, you may find that all the factors indicate towards a bullish market. Looking at these, you may expect your target stock to rise. But, the market decides to disagree and the stock price does not rise. Bottom line: Do not get married to your analysis. If the market is not supporting a stock, sell it as soon as it hits your stop-loss level. Holding on it in the hopes that the market will see sense can increase your losses. Once again, an intraday trader cannot afford to think like an investor.
7. Research your target companies thoroughly
Once you have identified a set of stocks by going through professional intraday calls, make sure to research them thoroughly. Find out when any corporate events are scheduled for. These include acquisitions, mergers, bonus issues, stock splits, and dividend payments among others. These could turn out to be as important as being up-to-date with the technical levels
8. Timing is crucial
One of the best intraday trading tips is not to take a position within the first hour of trading for the day. This is because volatility tends to be high at this hour. Many experts prefer taking an intraday position between noon and 1pm.
9. Choose the right platform
Choose the right trading platform. Intraday traders make frequent transactions and accrue small gains daily. As such, it is important for you to choose the right platform, one that allows for quick decision-making, execution, and charges minimal brokerage. At AZEE Securities, you can opt for State of the trading platform and enjoy intraday trades across sectors.
10. Intraday trading rules
Successful intraday trading is to follow intraday trading rules. Market experts recommend a few basic intraday rules for individuals. For beginners they generally advice new traders to refrain from buying and selling stocks when the market open in the morning. That’s because company stocks are usually volatile in the first hour of the day.
Secondly, experts feel that new traders should invest in small amounts to test the waters. In order to beat the volatility of stock markets, it is also handy to have a predetermined intraday trading strategy and stick to it.
11. Process of choosing stocks for intraday trading
Intraday traders often decide to pick stocks depending on the volume of trading. Generally, it is better to pick stocks when the volume of trading is high. That’s because if the trading volume is high, prices usually move upwards too. Volume is nothing but the number of times a company’s stock is traded at a particular time.
A stock’s resistance level is a handy indicator too. Buying a stock when it breaks its resistance levels and moves upwards is usually a good time to pick stocks.
Following the news is very important for intraday traders. In most cases, company’s stock prices rise on the back of good news. It is also handy to keep a tab on the top gainers and losers of the week. They can tell you how different stocks have been performing over a particular time period.
12. Intraday time analysis
Intraday traders frequently use daily charts to gauge how different stocks are performing on the same day. Daily charts help traders to figure out short-term stock price movements. Some of the popular daily charts used by traders include the hourly charts, 15-minute charts, five-minute charts and two-minute charts. It all depends on what time period the trader wants to analyze.
13. Booking when target price is reached
Intraday traders can usually go two ways: they either fail to close an open position when the target is unmet or they refuse to book their profits once the target is reached. However, both the strategies are fraught with risks. It is important to close your open positions before the end of the day.
However, if a trader feels that a particular stock price has potential to increase further, it is important to readjust the stop-loss option and reduce the risk factor to a certain extent.
14. Make profit through intraday trading
The Relative Strength Index (RSI) is another tool that can help evaluate which way the stock prices can move. If the RSI of a stock is above 30, it sets off a potential ‘buy’ signal as it suggests that the stock is undersold. If it is above 70, it indicates that a stock has been overbought and sets off a potential ‘sell’ signal.
Another intraday trading strategy is to look for stocks that are not in the spotlight. That’s because the price of the stock would reduce when the demand is lower. Intraday traders should go through historical data and research reports to gauge the demand for a particular stock. If you find that the demand is high, stock prices would be higher in most cases. This is when you can choose to refrain from buying that stock.
Intraday Trading Indicator & Strategies
Intraday trading decisions are usually made based on price movements. But not all traders may be equally adept at reading and interpreting these movements. This is why many intraday traders depend on some indicators to help them arrive at the right decisions.
That said remember intraday trading requires precise timing of sell/buy decisions to be profitable. As such, using too many indicators can be counter productive too as they can slow down your decision-making. Plus, many indicators present the same information with a slight variation. This makes some of the indicators redundant.
Types of Trading Indicators:
Broadly speaking, intraday trading indicators come in 6 flavours. Experts recommend following one indicator of each type for most decision-making. However, you can follow more indicators as per your convenience. These flavours are:
• Oscillators: This is a group of indicators that move up and down between an upper and lower bound. Examples of this type of indicator include: Relative Strength Indicator (RSI), Commodity Channel Index (CCI), Stochastics, and Moving Averages Convergence Divergence (MACD).
• Volume: This flavour of indicators mainly relies on trade volumes. They also combine this volume data with price data. This helps indicate the strength of a trend. Such indicators are Chalking Money Flow and On Balance Volume (OBV) among others.
• Overlays: These are indicators that are overlaid directly on the price movement and are not shown separately. These serve a variety of purpose and some traders may use multiple overlays as well. Popular examples of this type of indicators include: Bollinger Bands, Parabolic SAR, Keltner Channels, Moving Averages, and Fibonacci Extensions and Retracements.
• Breadth Indicators: These indicators show how the stock market at large is behaving. They do not directly show how a stock being monitored behaves. Examples include Trin, Ticks, Tiki and the Advance-Decline Line.
• Trend: Trend indicators help to capture gains from an asset’s momentum in a given direction. These highlight the direction in which the market is moving. They also offer hints on the strength and likely continuation of a trend. Moving Averages, RSI, and OBV are examples of trend indicators.
• Volatility: These indicators show the extent of price change over a given period. When volatility is high, price swings are expected. When volatility is low, price fluctuations are more subtle. Depending on the market condition, one could use indicators like Average True Range and Bollinger Bands.
Useful Indicators for Intraday Trading Beginner
Now that you have a basic understanding of the broad types of indicators, here’s a list of indicators that are likely to be useful for a beginner intraday trader
1. Moving Average: A Moving Average (MA) is a line showing the average closing price of a stock for a given period. As the price movements have volatility, it may not always be clear if the price movement has any long-term trend. MA isolates this trend by showing the average closing price over a period. A short-term average higher than the long-term average usually indicates that the market is bullish about the stock under consideration.
2. Bollinger Band: This is a band that shows how the price deviates on average from the moving average over a period. Traders believe that the stock price is likely to trade within this band. So if a stock is trading under the Bollinger band, traders expect it to rise and vice versa.
3. Momentum Oscillator: This indicator shows how strong the demand for a share is at a given price point. For example, if the share price is rising and approaching the weekly high, but the momentum oscillator is falling, a trader infers this to indicate that the price will soon turn as the demand for the share is falling. On the other hand, a rising momentum oscillator shows that the trend is strong and is likely to continue to hold.
4. Relative Strength Indicator: RSI is one of the most popular oscillators. It tracks the last 14 periods by default and shows the strength of a price. It does so using an index that ranges between 0 and 100. If the RSI is at 70 or above, it could indicate that market is overbought. This means a price fall or a correction is due. On the other hand, if the RSI is below 30, it could indicate that the market is oversold. Traders then expect the price to start rising soon.
5. Commodity Channel Index: CCI measures the difference between the current market price of an asset and its historical average. A CCI above zero indicates the price is above the historic average. If it is below zero, the price is below the historical average. CCI can rise or fall indefinitely. So, it is used to assess if an asset has been overbought or oversold. Traders check this for individual assets by studying the historical extreme CCI readings at which a price reversal occurred