Here's a glossary of common stock trading terminology, essential for anyone navigating the Pakistan Stock Exchange (PSX):
Basic Concepts & Players:
Stock (Equity): A type of security that signifies ownership in a corporation listed on the PSX and represents a claim on a part of the corporation's assets and earnings.
Share: A single unit of ownership in a company.
Shareholder: An individual or institution that legally owns one or more shares of stock in a public or private corporation listed on the PSX.
Exchange (Stock Exchange): A marketplace where securities, such as stocks, are bought and sold (e.g., PSX).
Broker: A licensed professional registered with the PSX who executes buy and sell orders on behalf of investors.
Brokerage Account: An investment account with a brokerage firm licensed by the Securities and Exchange Commission of Pakistan (SECP) that allows you to buy and sell securities on the PSX.
Market Capitalization (Market Cap): The total value of a company's outstanding shares listed on the PSX, calculated by multiplying the current share price by the number of shares outstanding.
Publicly Traded Company: A company whose shares are listed on the PSX and can be bought and sold by the public.
IPO (Initial Public Offering): The first time a company offers its shares for sale to the general public on the PSX.
Order Types & Execution:
Bid Price: The highest price a buyer is currently willing to pay for a security on the PSX.
Ask Price (Offer Price): The lowest price a seller is currently willing to accept for a security on the PSX.
Spread (Bid-Ask Spread): The difference between the bid price and the ask price, representing the market maker's profit margin.
Market Order: An order to buy or sell a security immediately at the best available current market price on the PSX.
Limit Order: An order to buy or sell a security at a specific price or better on the PSX. The order will only execute if the market reaches your specified price.
Stop Order (Stop-Loss Order): An order to buy or sell a stock on the PSX once it reaches a certain price (the "stop price"), at which point it becomes a market order. Used to limit potential losses.
Good Till Canceled (GTC): An order that remains active until it is executed or until you cancel it, typically for a set period allowed by PSX rules.
Fill or Kill (FOK): An order that must be executed immediately and in its entirety on the PSX, or else it is cancelled. No partial fills are allowed.
Immediate or Cancel (IOC): An order that must be executed immediately on the PSX, either in full or in part. Any unexecuted portion is cancelled.
Market Directions & Conditions:
Bull Market: A period when stock prices on the PSX are generally rising, characterized by optimism and investor confidence.
Bear Market: A period when stock prices on the PSX are generally falling, often accompanied by pessimism and investor fear.
Volatility: The degree of variation of a trading price series over time on the PSX. High volatility means prices fluctuate widely; low volatility means prices are relatively stable.
Liquidity: The ease with which an asset can be converted into cash without affecting its market price on the PSX. Highly liquid stocks can be bought and sold quickly without large price swings.
Circuit Breaker: A mechanism used by the PSX to temporarily halt trading in the event of extreme price movements, to prevent panic selling or buying.
Financial Metrics & Analysis:
Volume: The number of shares traded over a specific period on the PSX. High volume often indicates strong interest in a stock.
Dividend: A portion of a company's earnings paid out to its shareholders, often as per company policy (e.g., quarterly, semi-annually, annually).
Dividend Yield: The annual dividend per share divided by the stock's current share price on the PSX, expressed as a percentage.
EPS (Earnings Per Share): A company's profit divided by the number of its outstanding shares. A key indicator of profitability.
P/E Ratio (Price-to-Earnings Ratio): A company's share price on the PSX divided by its earnings per share. Used to value companies and compare them to others.
Beta: A measure of a stock's volatility in relation to the overall market (e.g., KSE-100 Index). A beta of 1 means the stock moves with the market; greater than 1 means more volatile; less than 1 means less volatile.
Technical Analysis: A method of evaluating securities on the PSX by analyzing statistics generated by market activity, such as past prices and volumes.
Fundamental Analysis: A method of evaluating a security listed on the PSX by attempting to measure its intrinsic value, by examining related economic, financial, and other qualitative and quantitative factors relevant to the company and the Pakistani economy.
Trading Strategies & Concepts:
Long Position (Going Long): Buying a security on the PSX with the expectation that its price will rise.
Short Position (Going Short / Short Selling): Selling a security you don't own (borrowed from a broker) with the expectation that its price will fall, so you can buy it back at a lower price and return it, profiting from the difference. (Note: Short selling practices on the PSX may have specific regulations and limitations).
Diversification: The strategy of spreading your investments across various asset classes, industries, and geographies within the PSX and broader Pakistani market to reduce risk.
Portfolio: A collection of investments owned by an individual or institution on the PSX.
Day Trading: Buying and selling securities within the same PSX trading day, with the goal of profiting from small price movements.
Swing Trading: A short- to medium-term trading strategy on the PSX that seeks to profit from "swings" in stock prices, typically holding positions for a few days to a couple of weeks.
Margin: Borrowed money from a PSX broker to purchase securities on the PSX. Increases potential returns but also potential losses.
Margin Call: A demand from a broker for an investor to deposit additional money or securities to bring the margin account back up to the minimum maintenance margin as per PSX/brokerage rules.
Stock Split: A corporate action by a PSX-listed company that increases the number of its outstanding shares by dividing each existing share into multiple new shares.