WHAT ARE SHARES

Shares, as the name says, are shares in a limited company. Each shareholder is a partial-owner of the company in which they have bought shares and investors can buy and sell their shares on the stock exchanges. Companies on incorporation issue shares, (also called equities) and later perhaps when they are building up a business. The original shareholders might still own them, or they may have sold them to someone else through the stock market. If the company makes a profit, the shareholders normally have some of it passed to them in the form of dividends. The amount paid in dividends varies year by year, depending on how profitable the company has been and how much money the directors and the company management want to keep in reserve for future expansion.There are different ways in which you can participate in the stock market:

1. Directly: by buying and selling shares;

2. Indirectly: through a collective vehicle, in which shares are grouped together, such as a mutual fund or Exchange Traded Fu

WHAT IS STOCK EXCHANGE

A stock exchange, 

share market or bourse is an organization which provides "trading" facilities for stock brokers and traders, 

to trade shares of the listed companies and other financial instruments such as Term Finance Certificates and Derivatives.

 Stock exchanges also provide facilities for the issue (listing),

 redemption (delisting) of securities and other capital events including the payment of income and dividends.

 Karachi Stock Exchange (KSE) is a modern 

market where trading takes place with electronic trading system called Karachi Automated Trading System (KATS),

 which gives the Exchange advantages of speed and minimum cost of transactions. Trades on an exchange are by members only

HOW ARE SETTLEMENT AND CLEARING DONE

Clearing and settlement of all stock exchange transactions are provided by National Clearing Company (NCCPL),

 which acts as go between for KSE and Central Depository Company (CDC) which is the share depository company.

 Shares move between share-accounts held by the different participant-brokers of the Central Depository Company (CDC).

Stock market transactions are settled on the second day after the trade. Transfers are based on trades done at KSE.

 Shares are transferred on settlement date (T+2) to the buyer, and the buyer pays the seller through

 the clearing banks within the same settlement period. 

This means that transactions done on Monday must be settled by Wednesday.

 Settlements of accounts are done in the clearing house through National Clearing & Settlement System (NCSS),

 which is a fully automated electronic settlement system. 

Visit NCCPL website for further details regarding clearing and settlement

WHAT IS THE CENTRAL DEPOSITORY COMPANY (CDC)/CENTRAL DEPOSITORY SYSTEM (CDS)

The CDC is a company that operates an electronic share register called

 the Central Depositary System (CDS). 

The CDS eliminates the need for physical movement of share certificates. 

CDC electronically manages book entry system for custody and transfer of securities.

 CDS was introduced to replace the manual system of physical handling and settlement of shares

 at the stock exchange and is managed by the Central Depository Company (CDC), 

which is incorporated under the Central Depositories Act 1997. 

Investors can open their accounts directly with CDC called Investor

 Accounts or open sub accounts with a brokerage firm. It has also solved 

investor problems related to stock handling on the settlement date, 

registration of shares, and exercise of corporate action benefits.

 Visit CDC website for further details regarding shares safe keeping.

HOW CAN I BUY AND SELL SHARES

You can buy shares when a company first comes to market - 

that is at flotation or privatization; or you can buy them through 

the stock market once they are in circulation and being traded.

Companies which are about to issue shares often advertise in a daily newspaper.

 If you decide to buy these shares, you can seek more information from 

the company's website or you can fill up the application form at the affiliated bank or ask 

the company for a prospectus. Fill out the application form and submit it with your pay order, 

at the bank. There is nothing more to pay. Alternatively, you can go to a stockbroker who will buy them for you.

Most share dealings take place in what is called the secondary market. This is where existing shareholders sell

 and new investors buy.Today, buying shares is easy. You can buy and sell shares by making contact with 

a stockbroker, bank or investment adviser, either in person or over the internet or telephone.

WHAT IS THE MINIMUM AMOUNT OF INITIAL INVESTMENT

Some brokers may require a minimum initial investment to open 

an account depending on their requirement or may charge or waive 

other fees depending on the amount you initially invest.If you are 

just getting started with a small investment, look for an investment 

firm that would not penalize you based on the size of your investment.

The minimum amount of money needed to invest in the stock market depends

 on the minimum number of shares to be traded for the stock. The minimum 

shares will be determined by the prevailing market price of a particular 

stock, as each stock, the minimum number of shares to be traded is fixed, 

called the market-lot, which depends on the price range of the stock.The market

 lot is calculated biannually by NCCPL, keeping the lot size to 500-shares for 

scrip which are priced less than Rs. 50 and lot size of 100-shares for scrip priced above Rs. 50

WHAT ARE THE RISKS OF INVESTING IN STOCKS

While it is true, that stock investment is the most volatile of all securities, investors might well recall the fact that uncertainty, is a permanent feature of any investing perspective. This means that risk is always a part of any investment. A better attitude would be to limit and manage your risk. A maximum level of gain or loss should be set, and calculated decisions should be made when this level is reached.