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
