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2. In plain and simple words a share is a Participation in the Ownership of a company.
It represents a claim on the company's assets in the event of winding up of a company. It also
represents a claim on the company's earning to the extent of once share holding.
You buy a share in the hope of realizing returns in the form of dividends and increased price
of the share.
What is Share
3. A share market is where shares are either issued or traded in.
A stock market is similar to a share market. The key difference is that a stock market
helps you trade financial instruments like Bonds, ETF’s as well as Shares of companies.
A share market only allows trading of shares. The key factor is the stock exchange – the
basic platform that provides the facilities used to trade company stocks and other
securities. A stock may be bought or sold only if it is listed on an exchange.
What is Share Market
4. There are two types of markets
Primary Market: This where a company gets registered to issue a certain amount of
shares and raise money. This is also called getting listed in a stock exchange.
Secondary Market: Once new securities have been sold in the primary market, these
shares are traded in the secondary market. This is to offer a chance for investors to exit an
investment and sell the shares.
What is Stock Market
5. Now that we have understood what is stock market , let us understand the four key
financial instruments that are traded in our Pakistan Stock Exchange.
Instruments in Stock Market
6. Stock markets are risky. Hence, they need to be regulated to protect investors. The Security
and Exchange Commission of Pakistan (SECP) is mandated to oversee the secondary and
primary markets.
SEC has the responsibility of both development and regulation of the market. It regularly
comes out with comprehensive regulatory measures aimed at ensuring that end investors
benefit from safe and transparent dealings in securities.
What is SECP and Its Role
7. We introduced market participants and other share market basics. Let’s try to stitch these
narratives together and understand how the stock market works.
A stock exchange in the platform where financial instruments like stocks and derivatives
are traded. Market participants have to be registered with the stock exchange and SECP
to conduct trades.
First, a company gets listed in the primary market through an Initial Public Offering (IPO).
In its offer document, it lists details about the company, the stocks being issued, and so
on.
How Stock Market Works
8. Once listed, the stocks issued can be traded by the
investors in the secondary market. This is where most of
the trading happens. In this market, buyers and
sellers gather to conduct transactions to make profits or
cut losses.
Stock brokers and brokerage firms are entities
registered with the stock exchange. They act as an
intermediary between you, as an investor, and the stock
exchange.
Your broker passes on your buy order to the exchange,
which searches for a sell order for the same share.
Once a seller and a buyer are fixed, a price is agreed
finalized, upon which the exchange communicates to
your broker that your order has been confirmed.
How Stock Market Works
9. Now that you have understood exactly how the stock market works, Lets check out how
to invest in the market.
Step 1:
First, understand your investment requirements and limitations. Your requirements
should take into account the present as well as the future.
Step 2:
Once you understand your investment profile, analyze the stock market and decide
your investment strategy. Find out which stocks suit your profile.
How to Invest in Stock Market
10. Step 3:
Wait for the right time. Time is of utmost importance in the stock market. Merely getting
the stock right is not enough. Your profits will be maximized only if you buy at the lowest
level possible. The same applies if you are selling your shares. This needs time. Do not be
impulsive.
Step 4:
Conduct your trade either online or on the phone through your broker. Ensure that your
broker confirms the trade and gets all the details right. Recheck the trade confirmation to
avoid errors.
Step 5:
Monitor your portfolio regularly. The stock market is dynamic. Companies may seem
profitable one moment, and not-so profitable the next due to some unforeseen factor.
Ensure you regularly read about the companies you have invested in. In the case of some
unfortunate situation, this will help you minimize your losses before it is too late.
How to Invest in Stock Market