Stock Exchange Learning Zone
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Stock Exchange Learning Zone
Complete course — chapters, detailed notes (full), quizzes and exercises • Pakistan-focused (PSX)
Owner: LearnWithQazi
All chapters are contained below as toggle sections. Expand any chapter to read the full notes and answer interactive questions. Close a chapter to reset its interactive state.
Definitions & Overview
Stock Exchange: A regulated marketplace where investors buy and sell securities such as shares (stocks), bonds, and other financial instruments. It facilitates the trading of ownership in publicly listed companies. Think of it like a bazaar — but instead of fruits or clothes, you’re buying and selling ownership slices of companies.
What is the Pakistan Stock Exchange (PSX)?
The Pakistan Stock Exchange (PSX) is the central stock exchange of Pakistan, where investors can trade shares, bonds, and other financial instruments. It was formed by the merger of the Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE) in 2016, creating a unified national exchange.
Key Functions of PSX
- Connects buyers and sellers of securities.
- Regulates transparent and fair trading.
- Lists public companies for investment.
- Monitored by SECP (Securities and Exchange Commission of Pakistan).
What is the KSE-100 Index?
KSE-100 Index: Benchmark index of the top 100 companies listed on PSX based on market capitalization. It reflects the overall health and performance of the market. Calculated on market capitalization, adjusted for free float, and updated every second during market hours.
Bull Market vs Bear Market
Bull Market: Prices rising or expected to rise; investor optimism.
Bear Market: Prices falling (often decline of 20%+); investor caution.
Bear Market: Prices falling (often decline of 20%+); investor caution.
More Key Terms
| Term | Meaning |
|---|---|
| Blue Chip Stock | Shares of a large, well-established company with strong performance |
| Market Capitalization | Total value of a company’s shares in the market |
| Volume | Total number of shares traded during a period |
| Dividend | Profit shared by a company with shareholders |
| Circuit Breaker | A mechanism to stop trading if prices fall/rise too quickly |
Real-world insight: “KSE-100 crosses 80,000 points” — indicates strong combined performance of top 100 companies. Think of it like a cricket team score: 400 is very good; 120 is poor.
Market Summary (English + Urdu)
| Term | Meaning (English) | مطلب (Urdu) |
|---|---|---|
| Exchange | The platform where stocks are bought and sold (e.g., PSX) | وہ جگہ جہاں حصص کی خرید و فروخت ہوتی ہے (جیسے PSX) |
| Volume | Total number of shares traded during the day | دن بھر میں خریدے گئے یا بیچے گئے شیئرز کی کل تعداد |
| Value | Total monetary value of all traded shares (in PKR) | تمام خرید و فروخت کی گئی حصص کی مجموعی مالی قدر (روپے میں) |
| Trades | Number of individual buy/sell transactions | مکمل شدہ خرید و فروخت کے سودوں کی تعداد |
| Main Board / GEM Board | Primary list / Growth Enterprise Market | مرکزی فہرست / چھوٹے اور درمیانے درجے کی کمپنیوں کے لیے مارکیٹ |
Types of Securities
Overview: Stock exchanges trade many types of financial instruments — shares, bonds, IPOs, ETFs/mutual funds, and derivatives (advanced).
1. Shares (Stocks / Equities)
Shares represent ownership in a company. Types: Common Shares (voting rights + dividends) and Preferred Shares (fixed dividends, priority). Example: Buying 100 shares gives a stake in the company.
2. Bonds (Fixed Income)
A bond is a loan to a company/government. You receive periodic interest and principal at maturity. Types: Government Bonds (e.g., Pakistan Investment Bonds), Corporate Bonds.
3. IPO (Initial Public Offering)
When a private company offers shares publicly for the first time. Investors can buy ownership upon listing.
4. Mutual Funds & ETFs
Mutual funds pool many investors and are actively managed. ETFs trade on exchange like stocks and track indices.
5. Derivatives
Advanced contracts (futures, options) based on underlying assets. Used for hedging or speculation (higher risk).
Summary Table
| Security Type | Risk | Return Potential | Ownership |
|---|---|---|---|
| Shares | Medium–High | High | Yes |
| Bonds | Low | Moderate | No |
| IPOs | Medium | High | Yes |
| Mutual Funds / ETFs | Low–Medium | Moderate | Indirect |
| Derivatives | High | Very High | No |
Q1. Which security gives direct ownership in a company?
Shares (Equities)
Bonds
Options
Q2. Fill in: An ETF trades like a _____ on the exchange.
Players & Process
Buyers & Sellers: Investors/traders place buy/sell orders. A trade happens when buyer and seller agree on price.
Brokers: Licensed intermediaries registered with PSX/SECP — you need a broker to trade on PSX.
Market Makers: Institutions that provide liquidity by continuously quoting buy/sell prices.
Clearing Houses: Post-trade settlement handled by CDC & NCCPL in Pakistan.
Brokers: Licensed intermediaries registered with PSX/SECP — you need a broker to trade on PSX.
Market Makers: Institutions that provide liquidity by continuously quoting buy/sell prices.
Clearing Houses: Post-trade settlement handled by CDC & NCCPL in Pakistan.
How a Trade Happens (Step-by-Step)
- Investor places order via broker / trading app.
- Broker routes order to PSX trading system.
- Matching engine finds counterparty — trade executes.
- Clearing & settlement (T+2): CDC/NCCPL settle money & shares.
Price movements
Prices move by supply & demand. Company earnings, economic news, political events, global markets, investor sentiment, and currency rates all affect prices.
Bid & Ask
Bid: Highest price a buyer will pay. Ask: Lowest price a seller will accept. Trade occurs when bid = ask.
Risk, Return & Psychology
Risk: The chance actual returns differ from expected returns. Types include market risk, company-specific risk, liquidity risk, currency risk, interest-rate risk.
Return: Profit or loss from investing — capital gains and dividends.
Return: Profit or loss from investing — capital gains and dividends.
Risk vs Return
| Investment Type | Risk Level | Return Potential |
|---|---|---|
| Government Bonds | Low | Low |
| Blue Chip Stocks | Medium | Medium |
| Penny Stocks | High | Very High / Zero |
Investor Psychology
Common emotional traps: Fear (panic sell), Greed (buy high), Overconfidence, Regret. Smart investors stay calm, diversify, have a plan, and review portfolios regularly.
Q1. True/False: Higher returns usually come with higher risk.
True
False
Q2. Which of the following is NOT a type of investment risk?
Market Risk
Liquidity Risk
Weather Risk (as a general market category)
Fundamental Analysis
Analyze company financials, business model, management, industry. Key metrics: EPS, P/E ratio, revenue growth, debt-to-equity, dividend yield.
Important Ratios
- EPS — Earnings per share
- P/E — Price to earnings ratio
- Debt/Equity — Financial leverage
- ROE — Return on equity
Technical Analysis
Uses charts, price patterns (candlesticks), moving averages, RSI, MACD, Bollinger Bands, support & resistance levels — mainly for timing entries and exits.
Step-by-step: Start Trading
Step 1: Choose a licensed broker (examples: AKD, JS Global, MRA, KTrade).
Step 2: Open a Trading Account + CDC account (documents: CNIC, proof of income, bank details, photo, signature).
Step 3: Install broker’s trading app; receive credentials.
Step 4: Deposit funds via bank transfer/Easypaisa/RAAST.
Step 5: Place your first order (search a symbol, choose quantity and order type: limit or market).
Step 6: Monitor portfolio, dividends, and news. Use 2FA and follow security tips.
Step 2: Open a Trading Account + CDC account (documents: CNIC, proof of income, bank details, photo, signature).
Step 3: Install broker’s trading app; receive credentials.
Step 4: Deposit funds via bank transfer/Easypaisa/RAAST.
Step 5: Place your first order (search a symbol, choose quantity and order type: limit or market).
Step 6: Monitor portfolio, dividends, and news. Use 2FA and follow security tips.
Interactive: Steps ordering (drag)
1) Drop step 1
2) Drop step 2
3) Drop step 3
4) Drop step 4
5) Drop step 5
Q. What order type executes immediately at the current market price?
Limit Order
Market Order
Stop Order
Strategies Overview
Long-term buy & hold, dividend investing, dollar-cost averaging (DCA), swing trading, value investing, growth investing, day trading, index funds/ETFs, and Shariah-compliant investing.
Golden Rules
- Never invest money you can’t afford to lose.
- Diversify across sectors and asset types.
- Review & rebalance periodically.
- Keep a trading/investment journal.
Q. Dollar-Cost Averaging (DCA) means:
Investing a fixed amount regularly irrespective of price
Investing once at the perceived market bottom
Risk vs Return
Higher potential returns typically come with higher risk. Understand types of risk (market, company-specific, liquidity, currency, interest-rate risk). Measure return as percentage: Return = (Current Value − Initial Investment) / Initial Investment × 100.
Q. Which is typically lowest risk?
Government Bonds
Penny Stocks
Charts & Indicators
Types: Line, Bar (OHLC), Candlestick. Key elements: price axis, time axis, volume bars, candlestick body & wicks. Patterns: Head & Shoulders, Double Top/Bottom, Triangles, Flags. Indicators: Moving Averages, RSI, MACD, Bollinger Bands.
Q. RSI value above 70 suggests:
Stock may be overbought
Stock is undervalued
Quick tips: confirm patterns with volume, use 2–3 indicators, zoom out for long-term trend.
Fundamental Analysis
Study balance sheet, income statement, cash flow statement. Key ratios: EPS, P/E, Debt/Equity, ROE, Current Ratio. Review annual reports, auditor’s opinion, 5-year summary.
Q. EPS stands for:
Earnings Per Share
Equity Price Standard
Example: MCB — EPS: Rs.22.75; P/E: 6.5; Debt/Equity low → stable bank with dividend potential.
Strategy Deep Dive
Long-term investing, dividend focus, growth, value, swing trading, day trading, index funds, shariah-compliant investing. Choose strategy to match goals and risk tolerance.
Q. Which strategy is best for passive investors seeking diversification with low cost?
Index Fund / ETF Investing
Day Trading
Common Mistakes
Mistakes: No research, trying to time the market, ignoring diversification, emotional investing, overtrading, ignoring risk tolerance, not reviewing the portfolio, impatience.
Do this instead: Research, DCA, diversify, set plans & stop-loss, review quarterly, keep a journal.
Do this instead: Research, DCA, diversify, set plans & stop-loss, review quarterly, keep a journal.
Q. Which is a good practice to avoid emotional trading?
Set a plan & use stop-loss orders
Follow social media tips blindly