If executed with the right knowledge and technique, the stock market can turn out to be the most profitable business for any person. In this article, we will try to provide all the comprehensive details on how to invest in Pakistan Stock Exchange.
What is a Stock Exchange?
As the name suggests, a Stock Exchange is a place where you can trade or exchange stocks. You can basically buy shares from companies, use them for investment and sell them again, in turn making a profit.
How does a Stock Exchange work?
Stock Exchanges all over the world work in the same way. A business raises its capital by distributing shares. The people who buy these shares plan on selling them someday which they do through the Stock Exchange instead of going from person to person in search of a buyer. A Stock Exchange allows complete anonymity of the person on the other end of the trade.
To understand how a Stock Exchange works, you need to think of it as an auction. Investors who estimate that a company will do good bid up the prices and vice versa.
Types of Investments in the Stock Market
Typically, you can make two types of investments in the Pakistan Stock Exchange:
Short Term Investment:
In a short-term investment, the investors buy and sell shares on a daily basis depending upon the market value. Such traders are referred to as day traders. They do so by their exceptionally good skills of analyzing financial aspects behind every trade.
Long Term Investment:
In a long-term investment, the traders keep their shares for a long time until the prices reach their peak so that they can gain maximum profit. In such an investment, they also get dividends every 3 months.
Conditions to Invest in Pakistan Stock Exchange
In order to invest in Pakistan Stock Exchange, you must first open a brokerage account. For a Pakistani national who’s living in Pakistan, you will require a funded Pakistani bank account along with national identification documents that confirm your identity.
For overseas Pakistanis or non-resident foreign nationals, certain requirements need to be met before making an investment in Pakistan Stock Exchange. They must first open a Pakistani bank account that offers custodial services.
Things to Consider Before Opening a Brokerage Account
The following things must be considered before you open an account from Pakistan to trade stocks online:
- Regulation and Exchange Membership
It is necessary for the brokers that invest in the Pakistan Stock Exchange to hold a Trading Right Entitlement Certificate (TREC). This certificate authorizes the traders to execute trades.
- Trading Platform
An online trading platform helps the brokers to analyze the market using price charts and indicators. Such trading software is necessary to place orders on the stock exchange.
Analyzing the market is the key to being successful at stock trading. Access to market research and other information is very useful in such an aspect.
Steps to Invest in Pakistan Stock Exchange
The first thing you will be required to do in order to invest in the Pakistan Stock Exchange is to open a brokerage account. You must have these documents with you to do so:
- A Pakistani bank account.
- Salary slip; if you are self-employed, provide a bank statement. This ensures swift credit history checks.
- To open a brokerage account, visit your nearest brokerage firm. You must thoroughly research first to find out which brokerage will work for you.
- Once you finish all the paperwork and admit all the documents, you will have to wait for 1-2 weeks.
- After this period, you will be granted the license to trade with PSX-issued stocks.
- You will not be required to visit your brokerage firm often as all your dealings and trades will be handled online by you.
Benefits of Investing in Pakistan Stock Exchange
- Capital Gain
A significant increase in stock prices can get you a maximized potential gain than your capital. As stock prices vary every day, this is a very opportune long-term investment plan.
- Shareholder Benefits
Various companies in the shareholder market sectors offer discounts and free services to their shareholders. If you own a substantial number of shares of a company, you will be offered exceptional discounts while purchasing goods.
At the end of each financial year, a part of the company’s profit called the dividend is paid to its shareholders in the form of cash. The more shares you own, the more profit you will earn at the end of each financial year.
The best thing about shares is their liquidity. They can be easily bought and sold without having to buy the entire product so it’s a win-win situation for brokers if they sell their shares at the right profitable time.
Before investing in a share, it is very important to go through their listings and offers as every company has different offerings.