What are Penny Stocks?

Investors in Stock Market are familiar with the term “PENNY STOCKS”. Usually in Pakistan Stock Market, Penny Stocks are phrased as Third Tier Stocks or may be Low Cost Stocks. Penny Stocks are the stocks usually trading below the Par Value i.e Rs. 10. Sometimes even stocks having prices less then Rs.20 are also classified as Penny Stocks. Penny stocks or Low priced stocks have the attraction & equally potential of investing small amount by turning into huge sum of profit pretty quickly. But at the same time, same very stocks may lead to wipe-out your whole lot of investment also. For Example it is easy to move stock A from Rs. 6 to Rs.10 almost around 70% of the return. This is just like POL – Pakistan Oil Field stock price moves from Rs.600 to Rs.1000 which is not easy to happen in practical.   

Though penny stocks or low profile stocks have hidden potential to balloon your profits but still remained dangerous investment. Institutional investors avoid usually penny stocks which is why retail investor should also consider before opting.

There is a right way to go about for investing in penny stocks. In Pakistan some of the listed companies started as penny stocks have turn into great success today. Purpose of investments is to make money, so we need to select those penny stocks which are making money. After all, you decided to take high risk and high rewarding penny stocks are good for investment then here are the steps you need to review before consider into your portfolio.

1.    Check that company as a credible business model or otherwise. Companies just moving funds in & out are better to be avoided.

2.    Historic trend of the liquidity of the stock should be considered. As if stock hardly traded in past few months and being witnessed sudden trigger in volumes should be avoided.

3.    Stay tuned to the news & business websites and discussion forums where you are likely to get insight of the company.

4.    Unfold the facts from the market of the company’s tall claims or some ambitious plans. Some analyst or competitors may enlighten you about the true picture of the company.

5.    If you are committing your funds on the basis of DIHAN, in today’s world one can get in touch with company’s management or even PSX - Pakistan Stock Exchange about the facts.  

6.    All penny stocks are not bad, so credibility of the management and the group behind the company also matters.

7.    Never put your all funds in penny stocks even if the stock has great fundamental value. One can commit proportion of the investment for penny stocks and ensure to book profits at regular interval.

          One must remember there is nothing wrong or not all penny stocks are bad, however these stocks are vulnerable and easy to manipulate. They also remained under the radar of regulator in the greater interest retail investor must consider proportion of portfolio for penny stocks with caution and avoid exposing all liquidity in the process.      

#AZEESECURITIES    #PSX     #ONLINETRADINGPAKISTAN

What Causes Volatility in Pakistan Stock Market

For a long time, Pakistan’s Stock Market was performing exceptionally well. Over the years of continued stable political and improved security indicator further strengthened the economic activity in the country. All of a sudden, political turmoil griped the country in wake of Panama Leaks accusing head of the ruling party.

Here are the reasons why the Pakistan stock market has been experiencing major volatility.

Political ripple effect:

Pakistan’s largest party and PM accused in Panama Gates and ousted after marathon hearings in the country’s highest court. As a result, PSX - biggest stock market of Pakistan invariably had a ripple effect all over. When the KSE100 index fell after marking historic high of around 53,000 slipped more than 30% despite venturing into MSCI regime.  

Risk of fiscal gaffe:

Persistent rise in the current account deficit due to a higher trade gap led by a significant increase in imports as compared to exports. Pakistan’s trade deficit rose 24.18% to over $9.2 billion in the first seven months of the current fiscal, while foreign currency reserves were declining at a rapid pace. The markets are worried the way the local Rupee devolution in recent past, higher trade deficit may pose extra pressure on Pak Rupee.

The total liquid foreign reserves held by the country stood at $18.413 billion on end of February, 2018 including $12.34 held by the SBP and remaining $6.067 billion by the commercial banks.

Foreign Remittances:

According to figures released by the State Bank of Pakistan for the period July-Feb increased by 3.41% to $12,833.64 Million compared to $12,410.54 Million for the corresponding period from last year. 

Foreign direct investment (FDI) remained dried up in the seven months of FY18, as FDI inflows came to $1.487 billion during July-January FY18, compared with $1.532 billion a year ago.

Recuperating Exports:

The exports achieving the highest monthly growth yet in the fiscal year by posting 16% increase in dollar terms exports in February 2017. However the current year’s export has already contributed additional inflows of around USD 1.5 bn during the first eight months and is expected to reach the figure of additional USD 2.5 bn, during 2017-18. This increase in economic activity in external sector reflects an increase of 0.8% of GDP.

Keep Check on Macroeconomic trends:

Economic manager needs to keep CHECK on current macroeconomic trends to sustain the achieved growth and huge catch up in the financial years ahead provided with controlled and fiscal discipline. Here are the encouraging signs to buildup.   

Timely completion of Energy Projects and low output cost would bring down cost of production.

Inflation Rate around 4%.

CPEC projects on track.

Senate Elections clearing the political vague.

Attractive Valuations.    

Potential growth in FDI’s.

IMPACTS OF GETTING DIGITAL IN STOCKS MARKET

On the eve of the digital age, share trading was predominantly conducted through brokerage firms and by brokers. This mainly gave complete control of the trading process to the brokers. But with the digital age, every sector of the economy has gone online. Share trading is no exception. This move has enabled traders to explore a whole new with tremendous opportunities.

Taking the trading process online has revolutionized the way we conduct share trading. It has simplified the whole process. Other benefits accruing to online trading, and that differentiate it from offline trading, include:

Independence – offline trading requires one to be in constant communication with the broker to facilitate trading. Online trading allows users to place their orders via the Internet as compared to offline trading which promotes dependence on broking firms.

Online trading is convenient – in the digital age that we live in, almost everyone has a portable Internet connected device. This makes connecting to online trading very easy for a vast majority of the population as compared to offline trading which requires a trader to communicate with the broker every time they want to trade.

It is affordable – online trading broking firms charge relatively affordable trading fees to use their online platform and use their services. Offline brokers and broking firms charge traders considerably high fees for facilitating the share trading.

It is efficient – as a trader, you can find everything you need to facilitate an informed trading process, i.e., research sources with updated trading reports and trading, on a single online platform. With offline trading, you usually have to do your research from different independent sources before contacting your trader to make the trade.

It is secure – the possibility of falling victim to fraud are eliminated through online trading as the funds in a trading account are held by a reliable, credible financial institution and can only be used by the trader. In offline trading, many cases have been experienced where a broker has made financially detrimental trading decisions without a trader’s permission.

Guidance – offline trading relies heavily on word of mouth advice from the broker on which shares are best to trade in. Online trading makes a wealth of up to date, verifiable and reliable financial reports available to help you make an informed decision on which shares to trade in.

Saves money – online trading allows you to save more compared to offline trading. The minimum capital required to begin trading online is significantly lower compared to those required by broking firms. You are also not billed for the calls you make, as you are not communicating with a broker.

Online trading is flexible – online trading gives you the opportunity to trade from anywhere and everywhere, at all hours of the day (global shares). With offline trading, you are restricted to trading at specific locations and at specific times, i.e., only during business hours.

When it comes to choosing which trading option is best to use, the decision is unique to each and dependent on preference. However, from the above, it is clear to see that online share trading is not only technologically up to date but it also comes with a wealth of opportunities not found through offline trading.

HOW TO BEGIN INVESTMENT IN PAKISTAN STOCK MARKET:

Pakistan Stock Exchange (PSX) is the most prominent stock exchange in Pakistan. If you have been looking to invest in stocks, this would be the perfect opportunity to engage in one of the Asia’s best markets.

Simple keys can help you accumulate capital calmly. After all, your money should be working for you, not the other way around, steps you can use in the Stock Market includes:

•    Research - Strive to learn more about the Market you want to invest in. This will help you to come up with a set of rules geared towards a successful outcome. In this case, research on the common market trends of Pakistan and figure out whether it’s a market you want to invest in, in the long term or short term. Ensure you stay within your plan after establishing them.

•    Trading is different to investing – investing in stock comprises of buying stock and holding it for long-term gains while trading is mainly focused on short-term benefits. Mid and long-term investors are not worried about short-term market fluctuations. This is due to the extensive research on the dynamics that influence the stock they want to invest in, i.e., a company’s standing in the industry, changes in management, the company’s stock charts, etc. all these help to make a more informed decision on the choice of stocks to invest in.

•   Diversify your investment portfolio – this means engaging your investment in stocks of different sectors. By taking on greater risk, you stand to realize a higher return on investment. Diversification also helps you shield yourself from market downturns.

•    Risk management – establish your risk tolerance before building your portfolio. After establishing this, you need to determine your loss level and stop loss level. These will help you manage your portfolio and see how profitable it is.

After considering all the above, you will now need to put them into practice. You do this by:

i.    Open an account with a brokerage firm like AZEE Securities. By registering with a firm, you get access to tools offered to the client as well as you will be able to get acquainted with the layout.

ii.   Read books and articles, attend seminars and classes on investing in stocks. These will prove to provide you with a wealth of education on your journey in trading in the stock market.

iii.    Get help from a mentor. Find a mentor who has been successful in investing in stocks. They will help you navigate the stock market waters, provide you with useful resources and be there for any questions you may have.

iv.     Find inspiration by following the greats.

v.    Practise through an online simulator. This helps you get experience and help you be more confident in your investment choices.

Investing in stock requires one to be a confident risk taker and can be a very profitable endeavor when done the right way. It is a trial and error activity that requires persistence. Take the risk and register with us at AZEE Securities (http://www.azeetrade.com/) for an inclusive and profitable walk through investing in the Pakistan Stock Market.