Here’s how to invest in Pakistan Stock Exchange

The Pakistan Stock Exchange (PSX) has been flying high for past several months fuelled by various factors, including strengthened macroeconomic indicators.

Capitalising on the economic boom, a plethora of investors has made exponential growth, particularly in the last one and a half years. Influencers and traders are wooing new investors to commit their capital in the stock market in order to gain financial returns, even though there is bright chance of losing it as well.

Before you start investing in the PSX, you have to open an investing account with a brokerage firm. This firm will act as your intermediary to the stock market.

Opening an account and starting to invest can be done with a small amount of capital.

To find a brokerage firm, you can visit psx.com.pk. Here you will see a slide-out menu on the right. Hover your cursor over it and click on Find a Brokerage Firm. On this page you will find a list of brokers who deal online as well but some of them deal physically only. Right above this list, you can find a bar titled List of Brokers Facilitating Online Account Opening, clicking on this will download a list of brokers facilitating online account opening.

You can choose a brokerage house of your choice, preferably from the renown ones, which you can find in a list of top 10 brokers on PSX website’s main page as well.

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After choosing your brokerage firm, go to its website. Here you can find Account Opening Form. You need to open two types of accounts with the firm:

Trading Account: This is your account with the brokerage firm, used to place buy and sell orders.

Central Depository Company (CDC) Account: This is where your shares are electronically stored. The CDC is the central custodian for all shares traded in Pakistan. Your broker will facilitate the opening of this account for you.

Required documents:

• A completed account opening form (provided by the broker).
• A copy of your Computerised National Identity Card (CNIC).
• Proof of income (salary slip or bank statement or business letter head) is required.
• A recent utility bill.
• Nominee details, if any (CNIC of your nominee).
• Your brokerage firm will provide you with a login details for their online trading portal.
• After your accounts are opened, you need to deposit money into your trading account. This can typically be done through: Online bank transfer. Cheque deposit. Cash deposit at the brokerage firm’s office.

Your investment amount can be as low as the price of a single share, though brokers may have a minimum deposit requirement to start.

Take some time to familiarise yourself with the platform. Learn how to search for stocks, view real-time prices, and understand the basic layout.

Research companies you are interested in. Look at their performance, business model, and news related to their sector.

For placing an order, log in to your trading account. Find the stock you want to buy.

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Select the number of shares and the price you are willing to pay or buy at the current market price. Confirm your order. Once the transaction is complete, the shares will be transferred to your CDC account, and the money will be deducted from your trading account. You are now officially an investor in the PSX.

What to see when investing?

There are various kinds of investments through which people make profits. The fundamental tip for ending up in profit is be patient and don’t get carried away by sentiments, as explained by IGI Securities Assistant Manager Equity & Commodity Sales Inam Shakir.

“People end up in loss when they panic sell their shares,” said Inam, speaking to Business Recorder.

Sharing an anecdote, he said two brothers, MBBS doctors by profession, invested millions of rupees and one made substantial gains while the other tanked badly.

“They invested in the stock market the same day in 2018 — one Rs4.6 million and the other Rs1.8 million. The one who invested Rs4.6 million suffered huge loss and was left with Rs0.15 million only, whereas the one who invested Rs1.8 million has accumulated gains more than Rs11 million over his principal investment amount,” he said.

The difference between them, he said, was that one was doing day trading, like he tried to fish profits on a daily basis and suffered back to back losses and the other reaped benefit through dividends and long term investment.

Explaining margin trading/ margin financing, Inam said it involves borrowing money from brokerage house, which mostly charges just the transaction fee for each share and sometimes charges interest too over the aggregate amount, for making investment on a confidence that the investor will get profit over it. This money is lent for one month and if the investor fails to make transaction within this time for whatever reason, he has to pay 25% over the borrowed money, he said.

The above article was contributed by Baseer Ahmed, Head of Political Desk at Business Recorder (Digital).