Lecture 7 Trading at KSE Trading at Stock

Lecture 7 Trading at KSE

Trading at Stock Exchange • To buy and sell shares at stock exchanges, investors have to open accounts with brokerage houses • In Pakistan, most of the brokerage houses require initial deposit of Rs. 100, 000, some allow deposit of Rs. 50, 000 • There are 200 member of KSE

Trading at Stock Exchange • After opening an account, an investor can trade by placing orders through phone, or internet (live accounts) • Orders placed for purchase of shares are called bid order • Orders placed for sale of shares are called offer orders

Type of Orders • Broadly classified: Two types of orders • Limit Orders • Market Orders

Limit Orders • When an investor specifies the price at which he is willing to buy or sell, such orders are called Limit order • Limit orders are sorted on the basis of price and then on first come and first serve basis • Bid orders with highest bid price are placed at the top • Offer orders with the lowest offer prices are placed at the top

Orders Sorting • Orders with similar prices are sorted on the basis of first come first serve • Orders at the top are fulfilled first • Limit orders are fulfilled only when matching price is available i. e. a bid order of 100 shares at Rs. 30 each will have to wait until someone offers his shares at Rs. 30 • Limit orders are fulfilled neither below nor above the price at which they are placed • Quantity matching is not necessary

Example Orders Sorting • 1. A bid order of 5000 shares of NML is placed with Rs. 70 a share SNo Bid Q Price Offer Q Price 1 5000 70. 00 - - • 2. Another investor bids 100 shares of NML at Rs. 71. 01 SNo Bid Q Price Offer Q Price 1 100 70. 01 - - 5000 70. 00

• 3. An order for sale of 3000 shares of NML at Rs. 72 is placed SNo Bid Q Price SNo Offer Q Price 1 100 70. 01 1 72 2 5000 70. 00 3000 • 4. A purchase order of 700 share at Rs. 70. 01 is placed SNo Bid Q Price SNo Offer Q Price 1 100 70. 01 1 72 2 700 70. 01 3 5000 70. 00 3000

• 5. Someone offers 1000 shares of NML at Rs. 70. 01 a share SNo Bid Q Price SNo Offer Q Price 1 5000 70. 00 1 200 70. 01 3000 72. 00 • 6. A bid order to buy 1000 shares at market is placed SNo Bid Q Price SNo Offer Q Price 1 5000 70. 00 1 72. 00 2200

Market Orders • Orders that are to be executed immediately at currently placed limit orders. It doesn’t have any price or time restriction • If a market order is not completely fulfilled from the top limit order, it is fulfilled from the next limit order in the sequence

Types of limit orders • Stop Loss order: The stock has to be sold if its price falls bellow stipulated level • Allow investor to avoid unexpected losses • Also useful in very uncertain markets • At KSE, maximum variation in prices is 5% per day • One can place stop loss order at 3% and avoid the 2% loss, if anything abnormal happens with the stock

• Stop-Buy Orders: Specifies that a stock should be bought when price of a security rises above a limit • It is usually used with short-sell to limit possible losses from short position • At KSE, orders have a validity of one day

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