How to Invest in Pakistan Stock Exchange – A Comprehensive Overview

How to invest in Pakistan Stock Exchange

Financial freedom is one of the biggest dreams of the 21st century. There are countless places nowadays to invest, like crypto, property, gold, etc.

Among thousands of options, there is a goldmine that continues to grow and lure investors. Backed by the government and valued by the biggest investors in the world, it is the stock market, and like most counties, Pakistan has one too.

The Pakistan Stock Exchange (PSX) consists of more than 500 listed companies from over 35 industries, offering a sea of opportunities.

If you are interested in securing your future, here is a beginner-friendly guide on how you can invest in the Pakistan Stock Exchange. 

Invest in the Pakistan Stock Market – 5 Steps 

Below are 5 steps you can follow as an absolute beginner before making your first investment. 

  1. Develop a Basic Understanding
  2. Collect Necessary Documents
  3. Find a Broker
  4. Open Your Accounts 
  5. Start Investing in Stocks

Now we will go through each step in detail to get a better idea of each. 

1. Develop a Basic Understanding

Develop a Basic Understanding of the stock market

Gaining a basic understanding of the stock market is crucial to better investments and better gains in the future. Here are some basics that you can go through before entering the market: 

What is the Stock Market? 

In the stock market, various companies list themselves to make their shares available to a broad range of investors. That way, the companies are able to raise capital through investments. 

Primary and Secondary market

The Primary market, also known as an IPO or Initial Public Offering, is the issuance of shares by a company to the general public. 

Once the IPO has taken place, the shares continue to be traded in the Secondary market, where shares are traded (exchanged) between buyers and sellers.

Index & Its Purpose

The index is a grouping of selected companies’ stocks according to certain financial parameters in order to measure the performance of a section of the stock market. There are 14 Indices listed on PSX, including KSE All Share Index, KSE 100 Index, KSE 30 Index, etc. 

These help us understand how the market is performing.

2. Collect the Necessary Documents

Collect the Necessary Documents to open account for trading

Here is the list of documents you will need before you approach a broker:

For Individuals

  • Attested copies of the CNIC of the applicant.
  • Attested copies of the CNIC of the Joint Holders and Nominees (if applicable)
  • Attested copies of the passport of the applicant, Joint Holders, and Nominees (in case of non-residents) 
  • A list including the commission to be charged by the Broker, Transaction fees, and other CDC charges to be levied.
  • A copy of the Letter of Authorization from the account holder of the person allowed to trade in the accounts (if other than the account holder).

For Corporate Entities

  • A certified copy of the Board Resolution (true copy) (sample provided on the site in Annex A).
  • Certified copies of Memorandum & Articles of Association (true copy)
  • List of nominated individuals allowed to place orders.
  • List of authorized signatories 

3. Find a Broker

Find a Broker

To invest and trade in the stock market, you will need the assistance of the TREC (Trading Rights Entitlement Certificate) holders/brokerage firms. 

These firms are recognized by PSX and are licensed by the Securities & Exchange Commission of Pakistan (SECP).

Therefore, you can trust these firms and rely on them with your precious investment as the government backs them. 

You will need to shortlist a few to choose the right broker for your investment. 

After you have shortlisted a few names, you should talk in person with the representatives of each shortlisted firm. 

Your final decision may depend on the  following factors: 

  • Ease of communication 
  • Availability of research material
  • Understanding of your defined objectives
  • Availability of online trading facility
  • Provision of trade confirmations
  • Brokerage charges levied
  • Physical proximity to your residence or workplace

Check out the list of brokerage firms verified by PSX to get started. Check out more details on the Official PSX Site

4. Open Your Account

Open Your Account for psx trading

After you have chosen a brokerage firm to work with, you will need to open a brokerage account. Along with that, you will also open a CDC Sub Account/ CDC Investor Account. 

An important thing to note here is to open the account(s) in your name.

Make sure to thoroughly read and understand the terms & conditions of the forms. Spot any differences in the form as per the Standard Account Opening Form on the PSX website.

Strike out any inapplicable clauses and get the deleted clauses signed by the brokerage firm as well.

Note: A CDC Investor Account is more secure than a CDC Sub Account as you are more in control of your securities. Hence it is the preferred choice. 

You will also have to deposit some funds (not in cash) to carry out the investments as you purchase shares. 

 5. Start Investing in Stocks

Start Investing in Stocks

Now that you have selected a broker and have opened your accounts, it’s time to start investing for real. Follow these steps to get started: 

  1. Select companies 

Choose the company you want to invest in and discuss it with your stock broker. This will build your portfolio. 

Look at parameters like the fundamentals and financials of the companies, the volume of activity in the stock market, the prevailing share price, etc.

  1. Place Your Order

After you have selected the company, it’s time to buy shares. You should place your orders through your broker (online applications are available)

After the order is placed and executed, you will get a Trade Confirmation. 

  1. Online Trading 

Many brokerage firms offer Online Trading facilities as well, allowing customers to trade by themselves.  This can be done through an online application or software.

  1. Basic Taxes

There are several taxes and charges applicable on shares trading at PSX some of these include: CGT (Capital Gains Tax), Brokerage Commission (Varies amongst brokerage firms), SECP Fee, CVT, IPF, etc.

Benefits of Investing in the Stock Market

The stock market offers huge opportunities, including financial freedom and gains.

Financial Freedom

By investing in the stock market, you gain financial freedom by investing in the short or long term. By investing, you become a shareholder of the company you have invested in.

Entitlement to Dividends

By purchasing shares of a company, you are entitled to dividends and other payouts. 

These include bonuses or right shares issued by the company, along with gains against the price increases of the shares.

Things to Keep in Mind 

To safely invest in the stock market, keep in mind the following factors:

Select the Broker Wisely 

  • Visit the offices of a few to observe their business practices
  • Ensure that the brokerage firm and its branches are registered with the SECP
  • Get clear information on the commission rates and services 

Read Terms Carefully

  • Thoroughly read and understand the terms and conditions of the form of the Brokerage Account
  • A CDC Investor Account is more secure than a CDC Sub Account; hence preferable. 

Keep Everything Documented

  • Obtain your Universal Identification Number or UIN 
  • Obtain your Client Identification Number or Account Number 
  • Get periodic statements from your brokerage firm Depository Company to check your securities and their movement.
  • Receive and check your Trade Confirmations 

Be Vigilant

  • Place your trade orders through one person rather than through several to avoid misunderstanding 
  • Every time you buy shares, get them transferred to your CDC Sub Account or CDC Investor account on the settlement day only
  • In case of any confusion, contact your stock broker immediately

Be in Control of Your Investments 

  • Define your investment objectives well and clearly 
  • Know your financial capacity and needs 
  • Avoid discretionary trading accounts, which allow the brokerage firm to execute trades for you.

Gain Financial Independance, Start Investing Today! 

So there you have it. The basics of investing in the Pakistan Stock Market. Explore the BlogPakistan site for more content like this.

Leave a Reply

Your email address will not be published. Required fields are marked *

Prove your are not robot by selecting the Flag.