How to invest in Pakistan Stock Exchange
1. Understand the market
The Pakistani stock exchange (PSX) is considered to be the second largest bourse in the world. However, its market capitalization is only $15 billion, compared to the Dow Jones index's $30 trillion. In 2017, the PSX closed at a record high of nearly 11,000. Its performance was largely driven by foreign direct investment (FDI), especially from China.
2. Find a broker
Trading stocks in Pakistan is not accessible to everyone due to a lack of regulations and low awareness. You may need professional help to find the best brokers and plan your strategy. There are many online platforms where you can trade stocks such as Sharekhan, Nasdaq Pakistan, and others.
3. Make a profit
The easiest way to make money in the stock market is to buy shares before they reach their peak value. You can do this by using charts and technical analysis to predict the right time to enter and exit positions. If you are looking for a short-term trading strategy, try day trading. This means buying a stock at lower prices and selling it at higher ones.
4. Invest wisely
Investing in stocks should never become a goal in itself. Instead, focus on diversification—especially with emerging markets. Also, avoid investing heavily in just one sector or company. Do some research first before picking any company, including financial statements and board members' backgrounds.
5. Know your risk tolerance
When beginning to invest, set realistic goals and keep your losses small. You can start with modest amounts and gradually increase over time. It is advised to have a margin account rather than open a brokerage account if you don't know what you're doing. Read up on how to protect yourself from scams.
6. Don't forget your taxes
Income earned from investments is taxed differently based on income tax rates. If you are in the 20% tax bracket, then you would pay 20% of the profits after expenses. On the other hand, dividends and capital gains are taxed at 15%. Therefore, it is recommended to use proper tax planning strategies when investing.
7. Keep records
Keeping records helps you track your transactions and monitor your portfolio. Use spreadsheets, paper, or electronic storage systems to document your trades. A good spreadsheet program can easily calculate your net profit and loss.