For all those investors who wish to buy international financial assets (and start investing straight away), the list above includes some of the best brokers offering trading platforms of financial instruments like CFDs on Shares, Indices, Commodities, ETFs, among other asset classes. Some of these Brokers have a minimum deposit of USD100; others have no minimum at all. So, they are quite accessible to the general public.
How To Invest in the Pakistan Stock Exchange (PSX) in 6 steps
Pick a Broker: Brokers are the authorised intermediaries to trade financial assets on the Pakistan Stock Exchange.
Open a Trading Account with a local broker: The only requirement is to be of legal age and have a Pakistan residence. The broker will provide you with access to their investment platforms, allowing you to send purchase and sale orders to the Pakistan Stock Exchange's central system.
Choose the Financial Asset to Invest in: The investor has to decide whether to invest in shares, sovereign bonds, or corporate bonds.
After deciding, send a Buy order through the broker: This means you have to submit a financial asset purchase order. It is possible to set a limit price or a market price of the selected asset.
The financial transaction completes when the buy and sell prices match: When the bidding price (the buyer) of a financial asset coincides with the asking price (the seller), the trade gets executed. The Brokers make the payment at the Stock Exchange in your name, and they deliver the transaction amount to the buyer/seller. You become the legal owner of the asset.
The broker issues the transaction notification and charges fees: There is no fixed fee, which means that when choosing a broker to invest in the Pakistan Stock Exchange, you will have to choose a broker that can better adapt to your investment strategy.
How does the Pakistan Stock Exchange work?
Based in Karachi, Lahore and Islamabad, the Pakistan Stock Exchange was founded in 2016 and is the country's leading Stock Exchange.
In short, the stock exchange is the institution that facilitates the negotiation of financial instruments in Pakistan. The supply of financial instruments such as stocks, bonds, currencies, and the demand for these instruments (i.e. investors) interact.
The Stock Exchange holds daily "Trading Sessions", for which it provides the physical, technological, human, and operational means that allow efficient communication between Brokers, Issuers, and Investors.
What is a Securities Issuer?
Issuers of securities are companies that seek to grow through raising capital at the Pakistan Stock Exchange. These companies raise money by issuing debt (bonds) or capital (shares). Issuers of securities may be government-controlled entities or private companies, but no matter who owns the company, it is the issuer who backs the investment.
For example, if you invested in bonds from a private company, the company will be required to pay the bond investors' principal and interests.
PSX' Classification of Financial Securities
PSX recognises five different asset classes:
Equity:
Regular/ Ready market: In this market segment, stocks of all companies listed are traded. Transactions are settled in two days (T+2).
Small & medium enterprise market: These are shares of companies with post-issue paid-up capital between 25 Mn and 200 Mn PKR are traded. Target investors for this segment include Qualified Institutional Buyers (QIBs) and High Net Worth Individuals (HNWI).
Odd lot market: In this market segment, investors can trade in securities in less than normal/ regular lots (500 shares). The minimum number of shares that can be traded is 1. Settlement takes place in T+2 days.
Square upmarket: In this market segment, if a Clearing Member (CM) fails to deliver sold securities, then the failed deliveries are squared up in the Square-up Market.
REIT (Real Estate Investment Trust): REIT is a fund based trust that owns income-producing real estate, buys real estate, develops, manage/ operates and sells real estate assets. REITs are modelled after mutual funds where all taxable income is paid out as dividends to shareholders.
Negotiated deal market: This is not part of the mainstream market transactions. Here negotiated deals are conducted outside the Exchange Trading Systems and are reported through the Exchange interface. These deals may also be called Off Market Transactions. These transactions are conducted between brokers.
Fixed Income:
Corporate debt instruments: These include Term Finance Certificates (TFCs), SUKUK Certificates, Registered Bonds, Corporate Bonds etc., and all kinds of debt instruments issued by any Pakistani company or corporation registered in Pakistan.
Government debt instruments: These are debt instruments issued by the Government of Pakistan. These include PIBs, Treasury Bills, National Savings Bonds, and Islamic Ijarah Sukuks.
Derivatives:
Deliverable Futures Contract (DFC): DFCs are forward contracts to buy or sell a specific underlying instrument with the actual delivery of the said instrument occurring. The minimum lot for purchasing these shares is 500 shares. Settlement takes place 30 days after the contract is purchased. The Opening of the Contract is Monday, preceding the last Friday of the month. The Expiration of the DFC is the last Friday of the calendar month.
Single Stock Cash Settled Futures (CSF): It is like a standardised contract which allows buying or selling a specific underlying instrument at a certain date in the future, at a specified price. Single Cash Settled Futures are standardised contracts to buy/sell single stock futures to be settled in cash, where the result of the trade is the cash difference between the buying and selling price. Settlement occurs purely on a cash basis. Settlement can occur 30, 60, & 90 days after the contract is purchased.
Stock Index Futures Contract (SIFC): SIFC is an agreement to buy or sell a standardised value of a stock index (basket of shares) on a future date at a specified price. SIFC allows investors to trade in the entire stock market by buying index futures instead of buying individual securities with mutual funds' efficiency. Currently, 90 days of SIFCs are available at PSX.
Options: The derivative product of Options will be introduced soon on PSX.
Exchange-Traded Funds (ETFs):
ETFs are a pooled investment vehicle with units bought or sold on the Stock Exchange at a market-determined price. Similar to mutual funds units, ETF owns the underlying assets (stocks or bonds) and offers investors a proportionate share in a pool of stocks, bonds, and other assets. The ETFs have Net Asset Values (NAVs) which are listed on the PSX website. The NAV of an ETF is the sum of marked-to-market values of the individual portfolio holdings plus the portion of the assets held in cash and cash equivalents, less all the accrued ETF expenses. The NAVs of these securities are disseminated during the day. The Settlement Dates of these securities is T + 2.
Margin Trading System (MTS):
In MTS (Margin Trading System), an investor can buy MTS eligible securities with a percentage of funds available for the total value of MTS eligible securities purchased. An investor may buy several MTS eligible securities while having only a fixed rate of funds available. The remaining amount is financed or leveraged by the Brokerage firm. The percentage of funds required for MTS is defined by the Brokerage firm which shall not be less than 15% of the total value of MTS eligible securities purchased or VAR (Value at Risk – A percentage number signifying the decline in the value of an asset class in a particular period of time). A mark-up rate of not more than Kibor+8% is charged against the leveraged securities held under MTS. Margin Trading Contracts are settled in T+2 days.
International Brokers operate easy-to-use apps that allow you to buy and trade financial assets (like US Stocks, Commodities, Indices) on any device.
How is a Trade completed in the Stock Exchange?
A trade, or, in other words, the investment flow of any financial instrument, could be summarised as follows:
Sellers (supply) offer to sell a financial instrument at a price, for example, a bond issued by a company. Sellers aim to make this price as high as possible (Price 1).
Investors (demand) who wish to obtain the bond make an offer at a determined price level. They want this price to be as low as possible (Price 2). Then, Price 1 is higher than Price 2.
Buyers interact with sellers until they are at the point where Price 1 equals Price 2. When this occurs, the trade occurs, and the bond exchanges hands between the seller and the buyer. A broker is needed to fulfil this transaction: A broker is a company that mediates between sellers and buyers, ordering prices and quantities of financial instruments. Below we explain the services that these companies provide.
What is a Stock Exchange Broker?
Financial Transactions should be fulfilled through a company that works as an intermediary between investors and sellers. These intermediaries are known as Brokers.
Through complex technological tools, brokers manage transactions between investors, ordering the purchase and sale orders of financial assets by price and by order of arrival. By performing this service, they obtain a commission when, for example, executing buying a share.
To invest in the Pakistan Stock Exchange, an investor needs to open an account with a local Broker.
Investing in International Financial Assets [From Pakistan]
As we have mentioned many times in this guide, financial assets have to be traded through a Broker. In the case that you decide to open an account with a broker who operates in the Pakistan Stock Exchange, you will be allowed to trade assets listed locally only.
If you, in turn, decide to open an account with an international Broker, you may invest in countless global assets. In other words, you can invest in international financial assets such as stocks listed on the New York Stock Exchange from Pakistan through an international Broker.
The job of an international Broker is to connect their clients with international Stock Exchanges. In other words, if a client intends to buy Apple shares (listed in the NYSE, New York Stock Exchange), the broker acquires the shares in the client's name and deposits the values in the client's trading account. In general, almost all International Brokers provide access to Exchanges from the United States, Canada, the UK, Japan, Switzerland, and Europe.
Opening an account with an international broker is usually an online process, and you can trade the financial markets from your phone in just a few days.
Best Brokers to Buy International Stocks available in Pakistan
This article will help you start investing, from the minimum amount of money required to open an account to some ideas to consider in your portfolio.
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