Learning
the Stock Market
The fresher the fish
the better the price at the market. The "stock market" is just
that- a huge "market" where stocks are traded by many different
vendors. Similar to the way other things are traded- like fish or
vegetables at the old-world market, or cows at the cattle auctions-
stocks are traded "at auction". Prices are determined by supply and
demand- by sellers and buyers willingness to buy or sell at a certain
price. As demand goes up, the price goes up, and so on.
Imagine, over 100 years ago, brokers literally shouting "I have 100
shares of Pacific Railroad for sale, how much will you offer me?" If a
broker had an order to buy some stock he would shout "Someone sell me
100 shares of Pacific Railroad! Who has the best price?" You've
probably seen some of that happening- in more modern times- in film
clips of the Chicago Board of Trade where wheat, corn and pork bellies
are bought and sold. Market trading is more organized now. Computers
do the shouting.
Brokers arrange for the actual trades (isn't "broker" a funny
name for someone that handles your money). A broker is someone who who
sells stocks for a dealer. Charles Schwab is a dealer. The dealer
holds inventories of stocks and sells them through the sales guy. The
sales guy is the broker or the specialist. If a sell order comes
across the computer at an attractive price, the dealer buys (through
his agent, the specialist) , and adds this stock to his inventory. The
brokers, and specialists, using computers, bring the dealers and
investors together.
What makes the price of a stock change?
Companies are expected to earn profit. If profits increase, the
stock price will likely increase. Even if investors think the earnings
will increase, the stock price may go up. If good news comes out on a
company, the price, and demand for the stock may go up. With bad news,
the price and demand may go down. The price of a stock is even more
dramatically affected when supply is very high or very low. It is not
so uncommon for certain unscrupulous individuals to "create" news or
other financial information, for the purpose of duping unsavy
investors into creating a demand situation, into which, the
unscrupulous-one "sells into" and makes an unfair profit. Investors
beware.
There are several different prices:
Opening Price is the first price paid after trading starts,
usually when the stock exchange "opens its trading doors", usually in
the morning. Sometimes, opening price is higher or lower than the
closing price of the previous day (orders are placed overnight, and
after stacking up, affect the demand- and, thus, the opening price.
Closing Price is opposite- its the price of a stock when the
market closes- the price "at the close".
Ask price is the price you will pay for a stock (and is
slightly more than the trading price because it includes a dealer
"commission").
Bid price is what the broker, or agent, will buy your stock for
(and is slightly less than the trading price because it includes a
dealer "commission").
Spread is the difference between the bid price and the ask
price.
If many buy orders come through the specialist, the price for the
stock will be increased. If many sell orders come across the desk, the
price will go down. Supply and demand drives stock prices. Lots of
orders reduces the spread- thinly traded stocks have a higher spread.
Stock Exchanges in Pakistan
Karachi Stock
Exchange
INTRODUCTION TO THE
KSE MARKET
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The Karachi Stock Exchange (KSE) was established on 18th
September, 1947. It was later converted and registered as a
Company Limited by Guarantee on 10th March, 1949. Initially, 90
members were enrolled, however, only half a dozen of them were
active as brokers. Similarly only 5 companies were listed with a
paid up capital of Rs. 37 million.
Now KSE has emerged as the key institution of the capital market
of Pakistan with:-
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 |
Listed companies 724, securities listed on the exchange 752:
ordinary share 724, Preference shares 5 and debt securities (TFC's)
23 |
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Listed capital US$ 4,646 million |
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Market capitalization US$ 7,746 million |
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Average daily turnover 142 million shares with average daily
trade value US$ 78 million |
|
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Membership strength at 200 |
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Corporate Members are 92 out of which 9 are public listed
companies |
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Active Members are 133 |
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Fully automated trading system with T+3 settlement cycle |
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Deliveries through central depository company |
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National Clearing and Settlement System in place |
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Stock Exchange Road, Karachi
Ph:92-21-2425502, 2425504
Fax:92-21-2410825
www.kse.com.pk
Lahore Stock
Exchange
INTRODUCTION TO THE LSE MARKET
Lahore Stock Exchange (Guarantee) Limited came into existence in
October 1970, under the Securities and Exchange Ordinance, 1969, of
the Government of Pakistan in response to the needs of the Provincial
metropolis of the Punjab. Only 83 members had its memberships and it
was housed in a rented building in the crowded area of Bank Square in
exotic city of Lahore. The number of members has increased from 83 to
150 over a period of 25 years.
The
past seven years have seen Lahore Stock Exchange come to its own.
Business has been steadily on the increase. A modern Management
Information System, (MIS) has been firmly in place. Clearing House
activities are fully computerized, computer ordering has been
implemented.
LSE
has set up a credit rating company named "Pakistan Credit Rating
Agency (Pvt) Limited", (PACRA), in a joint venture with International
Finance Corporation (IFC), and IBCA Limited of London.
Khayaban-e-Iqbal, Lahore
Ph:92-42-6368000, 6368522
Fax:92-42-6363848
www.lahorestock.com
Islamabad
Stock Exchange
INTRODUCTION TO THE ISE MARKET
The
Islamabad Stock Exchange (ISE) was incorporated as a guarantee limited
Company on 25th October, 1989 in Islamabad Capital territory of
Pakistan with the main object of setting up of a trading and
settlement infrastructure, information system, skilled resources,
accessibility and a fair and orderly market place that ranks with the
best in the world. The purpose for establishment of the stock exchange
in Islamabad was to cater to the needs of less developed areas of the
northern part of Pakistan.
At
present there are 103 Members out of which 29 are corporate bodies
including commercial and investment banks, DFIs and brokerage houses.
The other 74 Members are individual persons.
Since the inception of automated trading system which is called ISECTS
the trade volume is multiplying day by day and the average daily
turnover has now crossed the figure of 7.5 million shares. The
automated system which was indigenously developed replaced the outcry
system in 1997. Now all the listed securities are traded through the
ISECTS. The system of physical handling of shares and securities is
being phased out and majority of the scrips are settled through
Central Depository Company of Pakistan Limited.
At
the moment there are 285 companies/securities listed on the Exchange
with an aggregate capital of Rs. 155,352.618 million. The market
capitalization was Rs. 209,360.670 million (US $ 4,551.132 million) as
on 10-09-98
Fazal-ul-Haq Road, Blue Area,
Islamabad
Ph:92-51-823330, 275045
Fax:92-51-275045
www.ise.com.pk
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