KARACHI:
There was a time when the workings of the stock exchange were an enigma to most lay people. Equity trading represented a riddle, and stock brokers were mysterious, quick minds whose financial jargon only a few could claim to understand.
However, the emergence of online equity trading in Pakistan in the 2000s has increasingly enabled small investors with only a rudimentary knowledge of finance to cut out professional brokers from their everyday stock trading.
“Thanks to online trading, we have seen tremendous growth in the number of small investors. Roughly 50% of our total clients are small investors with an initial investment of less than Rs350,000,” Standard Capital Securities Chief Executive Naushad H Chamdia tells The Express Tribune in an interview.
The minimum account opening requirement of most brokerage houses in Pakistan ranges between Rs25,000 and Rs50,000. At the time of opening an account with a brokerage house, the new investor is also required to register themselves with the Central Depository Company, which uses a centralised electronic book-entry system to record and maintain securities besides registering their transfer. First-time investors can choose to trade through any of the 200 corporate members of the Karachi Stock Exchange.
Other than providing a trading account with user ID and password, which is accessed through software installed on the investor’s personal computer, a brokerage house also provides market research and fundamental, technical and economic analyses electronically on a daily basis. The transmission of information from the brokerage house to the investor is so seamless that investors seldom feel the need to speak to their broker in person.
“Currently, brokers don’t hold dominance in the market. Brokers are strong in a trader-driven market where people buy and sell to make profits. But in an investor-driven market, such as ours right now, mutual funds hold sway,” he notes.
Speaking to The Express Tribune, Mohammad Munir Mohammad Ahmed Khanani Securities CEO Mohammad Munir says that 90% of his all customers could be termed small investors. “I don’t have a minimum investment requirement to open an account. You can start trading with even Rs1,000,” he says.
As a traditional, no-nonsense broker, Munir says that his company does not put out lengthy research reports, nor does it hold small investor education sessions. “My strategy is simple. I let my new investor sit in my cabin right beside me for three days. He watches me trade, and learns how to read a technical analysis report,” Munir states in a matter-of-fact voice. “In a few days, he becomes a pro.”
On the contrary, Chamdia is big on investor education. “We’re proactive in approaching potential investors. So many of our new clients are from cities like Faisalabad, Gujranwala and Pindi Bhattian,” he says; adding that a lot of people, who have recently closed their factories due to the energy crisis, have now turned to the stock market.
Noting that the advent of the internet has ended the brokers’ monopoly on stock-related information, Chamdia says trading becomes easier as the investor gets experience.
“I see online trading as the future of Pakistan’s capital market. It is likely to overtake off-line trading soon,” Chamdia says. “Investors can now use web-based technology to trade stocks in real time from anywhere, anytime, independent of broker and service limitation,” he says.
Published in The Express Tribune, October 30th, 2012.
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Need to introduce CFD trading of both shares and index to make trading it popular.
We need to ensure transparency in our capital markets first before the volumes pick-up. There is too much insider-information available to people in the brokerage houses for retail customers to be profitable.