Stock Market is place where small traders always get in loss while big giants eat the chunks of profit of small investors as well. This is the perception of common man in Pakistan.

There are some features and essence of trading behind it. As majority of Pakistani are totally unaware from these three terminologies which influence on market a lot. And if you adopt these three things the probability of your profit increases manifold.

  1. STOP Loss

It’s clear from words that it’s placing full stop on a loss. Sharp trader always put stop loss on their trades.  It minimizes your level of risk. You identify your maximum level of loss.

  1. Future Trading (Short Selling)

It’s opposite of normal trading. You sell the stock first and then buy it. How it’s possible. It’s permissible in Stock trading while prohibited in Islam. In Normal trading, we buy the stock when it’s going upward. But in future trading we sell the stock when it’s going downward. Similarly, in normal trading, we sell the stocks when it’s going downward. But in future trading we buy the stock when it’s going upward.

As we all knew that stock price will remain stagnant, it moves like a waves, trough and crest. Only those can benefit from trading who have basic knowledge of stocks.

Its rule of thumb, that you can only get success in any business in which you have expertise or sufficient capital. Otherwise you always make losses in your ventures.

  1. Margin Trading

Why Brokerage houses offer margin trading?

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They always charge fees for this facilitation to investors. Investors’ greed insists them to go for margin trading. Everyone wants to become a rich person as soon as possible.

This margin trading is also prohibited in ISLAM. Because you need assistance of loan and you pay interest on borrowing amount.

What actually margin trading is?

E.g. If you have saving of Amount PKR 1000/- and you’re thinking to buy the shares of PTC whose current price is PKR 10/share.  Through this amount you can only buy 100 shares of PTC.

In Pakistan, 40% Margin trading is allowed. Which means that you can buy PKR 2,500/- Amount of shares by holding just PKR 1,000/-. Rest of Amount will be borrowing by broker and charge fee plus interest.

 

Scenario

 

Share Price Amount Invested/ Number of Shares owned Holding Shares of Amount/

# of Shares Hold

Favorable/ Unfavorable New Share Price Profit / Loss

In Percentage

A Rs. 10 Rs. 1000 / 100 Rs. 2500/ 250 Favorable Rs. 15 Rs. 1,250

125%

B Rs. 10 Rs. 1000 / 100 Rs. 2500/ 250 Moderate Favorable Rs. 12.5 Rs. 625

62.5%

C Rs. 10 Rs. 1000 / 100 Rs. 2500/ 250 Stagnant Rs. 10 Rs. 0

0%

D Rs. 10 Rs. 1000 / 100 Rs. 2500/ 250 Moderate

Unfavorable

Rs. 7.5 Rs. 625

-62.5%

E Rs. 10 Rs. 1000 / 100 Rs. 2500/ 250 Unfavorable Rs.5 Lose All your Investment but also pay Rs. 250 Additional to recover the loss on holding shares
  • No Taxes
  • No Brokerage House Fee
  • No Commission on trading
  • Zero Interest Payment
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