online stock trading

Online Stock Trading

(From Basics to Actual Examples)

byUsman Khawaja & Farhan Mir


Lecture Administration

• Introduction of the Guest Speaker

• Basics of Stock Trading

• Physical Vs. Online Stock Trading

• A Practical Demonstration on Online Stock Trading

• Question Answer Session


Introduction of Guest Speaker

• Completed Undergraduation (BBA) from Bahauddin Zakariya University in Business Studies

• Post Graduated from RMIT University, Australia in Computer Sciences

• Worked with International Business Machines (IBM) for 1.5 years

• Currently working in Local Industry and job responsibility includes IT & Finance affairs

Stock TradingThe Basics


All Starts here! (Income, Saving and Investing)

• Households earn income.

• Income is payments received by a household by selling or renting productive resources.

• Households usually spend some of their income and save some of it.

• Saving is income not spent on consumption or taxes.

• Some households use their savings to purchase stocks.

• Internationally stock trading is done by household but in Pakistan?


The Stock Market

• Stocks are shares of ownership in a corporation.

• Stock represents ownership in a firm, thus the owner has claim to the profits that the firm makes.

• Markets in which stock is traded:

> New York Stock Exchange

> American Stock Exchange

> NASDAQ

> Karachi Stock Exchange


The Stock Market and Stock Exchanges

• Stock market—a network of exchanges and brokers

> Exchange—a physical marketplace (NYSE, AMEX, regional exchanges)

> Broker—individual whose job is to assist people in buying and selling securities

• Work for brokerage firms

• Members of stock exchange


Trading—The Role of Brokers

• What brokers do…

> An investor will open an account with a broker

and place trades via telephone or online

> Local broker will forward order to floor broker

on trading floor of exchange

> Floor broker trades on the floor of the exchange

• Each stock is traded in a particular spot on

the exchange floor using an auction-like

process

> Trading is supervised by a specialist

• Specialists make markets in

designated securities

> Confirmation of trade is forwarded to local

broker and investor


Schematic Representation of a Stock Market Transaction


Information about “The Stock” Market

Most newspaper and Online stock tables provide the following information:

• Price (of a share)

• Volume (number of shares sold)

• Dividend (profits paid to stockholders)

• Price-earnings ratio


Online Stock Trading Model

Customer(trader)

Online Broker

Market-maker

Clearing-house

StockExchangecustomer’s

account


Stock Trading in Pakistan

• Pakistan has 3 Major Stock Exchanges. While Karachi Stock Exchange (KSE) catering more than 70% of stock market transactions

• KSE was established on Sep 18, 1947

• Initially started with 90 Members out of which only 6 were active brokers.

• Only 5 companies were listed with paid up capital of Pak Rs 37 Million


Current Stock Trading Position

Today

• 724 companies are listed, where as active trading is carried out on 330 companies

• Listed Capital is US $ 4,646 Million or Pak Rs 278,760 Million

• Market Capitalization is US $ 7,746 Million or Pak Rs 464,760 Million

• Average Daily Turnover of 142 Million Shares and US $ 78 Million or Pak Rs 4,680 Million

• Membership strength is 200 but 133 as active brokers


Karachi Stock Exchange

• Out of 133 only 8 brokers are offering online services

• Why only 8 Brokers?

> Setup cost is too high

> Need to deploy high security system

> Exact Requirements not disclosed for General Public


Online Trading in Pakistan

• Not really online as it is partial online

Following steps are involved on Broker end:

• Maintain Direct connection with iKATS (Internet Karachi Automated Transaction System)

> Backbone software of Karachi Stock Exchange controlled by SECP (Securities & Exchange Commission of Pakistan)

• Maintain link account with Central Depository Company, controlled by SECP (Securities & Exchange Commission of Pakistan) to control online transfer of shares


• Transparent account Maintenance of clients

• Maintain manual cash handling system

• Secure interface to the clients

• Efficient Support System

Steps required on Client End:

• As cash involvement is handled off line, so bank account is normally used

• Send money from bank account with account opening form to the chosen broker


• Broker on receiving money will verify the details and open account with him

• Get to know the online interface. Normally three types of interfaces working in Pakistan

> Online Website

> Software which connects to the web server on it’s own

> Through Short Messaging Service over Mobile Phone


Online Stock Trading Model

Customer(trader)

Online Broker

iKATS

CDC

StockExchangecustomer’s

account


• Online Demonstration of one of the major online brokers

(AKD Securities – Akeel Karim Deddy Securities )

www.akdtrade.com


After opening an account, you need to login through this interface

Note the secure server presence


After logging-in, it will display the following home window showing different options to go for


• The first & Basic thing is Research. All brokerage houses do conduct their own research and place them online for their users.

• Like in AKD Securities, they make two reports, one showing the last week’s trends in general and predicting the trend for next week and other daily report, which takes one sector and explores it. Sample is something like this


Other major important resources for the research are

• Contacts Hard to Believe but players don’t tell everything ONLINE

• Market Watch

• Different TV Channels like Business Plus & Indus Plus (Few Programs are really Excellent), Geo (Tezi Mandi)

• Different Newspapers & Magazines like Business Recorder, Dawn, Pakistan & Gulf Economics

• Different Websites, Business Recorder, KSE Official Website

• KSE Official Website has lots of material


Where as Business Recorder has lots of Organized Information


How to Trade?

• Best option is to read NOTICES everyday before start trading because they may have something which effects you today


Trading Section

• You need to place order


• If you are not sure about the company symbol, then you can search the symbol using following screen


• You can cancel the order if it’s not executed

• You can view the status of your order

online stock trading

Documents

exchangeeach stock

online stock tables

stock market transactionskse

major stock exchanges

stock marketmost newspaper

active trading

onlinelocal broker

exchange floor