The most common way of buying/selling shares in stock market is via trading through exchanges, where buyers and sellers meet and decide on a trading price. Through a stockbroker you can buy shares from existing investors who wish to sell them and vice versa.
There are also some exchanges which are physical location known as trading floors, where often trading is carried out. You might have come across in pictures where traders are yelling, waving up their arms wildly in air. The other means of exchange is virtual and is carried out via a network of computers where trading can be done electronically.
The aim of a stock market is to simplify the exchange of securities between buyers and sellers which can in turn reduce the risks associated with investing. So a stock market can be considered as a super-sophisticated market providing a linkage between buyers and sellers.
It’s important to have a sound knowledge between Primary and Secondary Market if someone wishes to trade.
Primary market is where the securities are made via an IPO.
Secondary market is where investors trade the already-issued securities without involving the issuing companies. It is what people refer to when they are talking about the stock market.
An investor or stake holder have to trade through registered brokers/brokerage houses of the stock exchanges and it doesn’t require the direct involvement of the company. Each stock exchange has a number of brokers/brokerage houses which are registered with the commission. Registered Brokers/brokerage houses are allowed to engage in execution of trade on others' behalf as per the laws, rules and regulations. The following points are of key importance if you are opting for trade.
- To ensure protection against fraud and misrepresentation an investor should trade only through registered brokers/brokerage houses and agents.
- To verify authenticity of brokerage house/brokers/agents registration, SECP has uploaded a list of registered brokers and agents of the Stock Exchanges on its website (www.secp.gov.pk). It is important to note that the registration of all the brokerage houses/brokers and agents are valid for a period of one year which is subject to annual renewal.
- Make regular enquiries from your broker/
- If you come across any unregistered/illegal broker/agent, please report the same immediately to the SECP as it is in your own interest and in the general interest of other investors.
- The list of registered brokerage houses/brokers and agents can also be found on respective websites of the Exchanges.