Pakistan stock exchange

A stock exchange, (formerly a securities exchange) is a corporation or mutual

organization which provides "trading" facilities for stock brokers and traders, to
trade stocks and other securities. Stock exchange is a highly organized market where
securities are purchased and sold.
A stock exchange is an organization of which the members are stock brokers. A
stock exchange provides facilities for the trading of securities and other financial
instruments. Usually facilities are also provided for the issue and redemption of
securities as well as other capital events including the payment of income and
dividends. The securities usually traded on a stock exchange include the shares
issued by companies, unit trusts and other pooled investment products as well as
corporate bonds and government bonds.

Market
What is 'Market'
A market is a medium that allows buyers and sellers of a specific good or service to
interact in order to facilitate an exchange. This type of market may either be a
physical marketplace where people come together to exchange goods and services
in person, as in a bazaar or shopping center, or a virtual market wherein buyers and
sellers do not interact, as in an online market. Market can also refer to the general
market where securities are traded. This form of the term may also refer to specific
securities markets and may take place in person or online. The term "market" can
also refer to people with the desire and ability to buy a specific product or service.

Types of market
There are two types of market
 Money market
 Capital market
Money market
The money market is where financial instruments with high liquidity and very short
maturities are traded. It is used by participants as a means for borrowing and lending
in the short term, with maturities that usually range from overnight to just under a
year. Among the most common money market instruments are eurodollar
deposits, negotiable certificates of deposit (CDs), banker's acceptances, U.S.
Treasury bills, commercial paper, municipal notes, federal funds and purchases
agreement.
Capital market
A capital market is a financial market in which long-term debt (over a year)
or equity-backed securities are bought and sold. Capital markets channel the wealth
of savers to those who can put it to long-term productive use, such as companies or
governments making long-term investments.
Types of capital market
 Primary market
 Secondary market
Primary market

In the primary capital market, investor buy directly from the issuing company. In
the secondary market, investors trade securities among themselves.

When a company goes public, it sells new stocks and bonds for the first time.
Usually, that sale takes the form of an initial public offering. Companies
hire investment bankers to obtain buying commitments from large institutional
investors for the IPO, often engaging in elaborate marketing strategies to secure
these commitments.

Secondary market

The secondary markets include the New York Stock Exchange, the London Stock
Exchange and the Nasdaq. Individual investors with little money are more likely to
buy and sell on the secondary market, where anyone can trade, even if they only
make small transactions.

Investors on the secondary market use brokers to make their purchases. Prices and
demand fluctuate daily, but the prices paid by investors no longer stem directly
from the IPO. Unless a company is buying back its shares, it has nothing to do with
sales in the secondary market between two investors.
WHAT ARE STOCKS?
The Definition of a Stock

Plain and simple, stock is a share in the ownership of a company. Stock represents a
claim on the company's assets and earnings. As you acquire more stock, your
ownership stake in the company becomes greater. Whether you say shares, equity,
or stock, it all means the same thing.

BEING AN OWNER

Holding a company's stock means that you are one of the many owners
(shareholders) of a company, and, as such, you have a claim (albeit usually very
small) to everything the company owns. Yes, this means that technically you own a
tiny sliver of every piece of furniture, every trademark, and every contract of the
company. As an owner, you are entitled to your share of the company's earnings as
well as any voting rights attached to the stock.

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A stock is represented hby a stock certificate. This is a fancy piece of paper that is
proof of your ownership. In today's computer age, you won't actually get to see this
document because your brokerage keeps these records electronically, which is also
known as holding shares "in street name." This is done to make the shares easier to
trade. In the past when a person wanted to sell his or her shares, that person
physically took the certificates down to the brokerage. Now, trading with a click of
the mouse or a phone call makes life easier for everybody.

Being a shareholder of a public company does not mean you have a say in the day-
to-day running of the business. Instead, one vote per share to elect the board of
directors at annual meetings is the extent to which you have a say in the company.
For instance, being a Microsoft shareholder doesn't mean you can call up Bill Gates
and tell him how you think the company should be run. In the same line of thinking,
being a shareholder of Anheuser Busch doesn't mean you can walk into the factory
and grab a free case of Bud Light!

The management of the company is supposed to increase the value of the firm for
shareholders. If this doesn't happen, the shareholders can vote to have the
management removed–well, this is the theory anyway. In reality, individual
investors like you and I don't own enough shares to have a material influence on the
company. It's really the big boys like large institutional investors and billionaire
entrepreneurs who make the decisions.

Shareholders not being able to manage the company isn't too big a deal. After all,
the idea is that you don't want to have to work to make money, right? The importance
of being a shareholder is that you are entitled to a portion of the company's profits
and have a claim on assets. Profits are sometimes paid out in the form of dividends.
The more shares you own, the larger the portion of the profits you get. Your claim
on assets is only relevant if a company goes bankrupt. In case of liquidation, you'll
receive what's left after all the creditors have been paid. This last point is worth
repeating: the importance of stock ownership is your claim on assets and
earnings. Without this, the stock wouldn't be worth the paper it's printed on.

Another extremely important feature of stock is its limited liability, which means
that, as an owner of a stock, you are not personally liable if the company is not able
to pay its debts. Other companies such as partnerships are set up so that if the
partnership goes bankrupt the creditors can come after the partners (shareholders)
personally and sell off their house, car, furniture, etc. Owning stock means that, no
matter what, the maximum value you can lose is the value of your investment. Even
if a company of which you are a shareholder goes bankrupt, you can never lose your
personal assets.

DIFFERENT TYPES OF STOCKS

There are two main types of stocks: common stock and preferred stock.
COMMON STOCK

Common stock is, well, common. When people talk about stocks in general they are
most likely referring to this type. In fact, the majority of stock issued is in this form.
We basically went over features of common stock in the last section. Common shares
represent ownership in a company and a claim (dividends) on a portion of profits.
Investors get one vote per share to elect the board members, who oversee the major
decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher returns
than almost every other investment. This higher return comes at a cost since common
stocks entail the most risk. If a company goes bankrupt and liquidates, the common
shareholders will not receive money until the creditors, bondholders, and preferred
shareholders are paid.

PREFERRED STOCK

Preferred stock represents some degree of ownership in a company but usually

doesn't come with the same voting rights. (This may vary depending on the
company.) With preferred shares investors are usually guaranteed a fixed dividend
forever. This is different than common stock, which has variable dividends that are
never guaranteed. Another advantage is that in the event of liquidation preferred
shareholders are paid off before the common shareholder (but still after debt
holders). Preferred stock may also be callable, meaning that the company has the
option to purchase the shares from shareholders at anytime for any reason (usually
for a premium).

Some people consider preferred stock to be more like debt than equity. A good way
to think of these kinds of shares is to see them as being in between bonds and
common shares. (If you don't understand bonds make sure also to check out our bond
tutorial.

History

The Pakistan Stock Exchange (PSX) is the stock exchange of Pakistan with trading
floors in Karachi, Islamabad and Lahore. PSX was reclassified as a MSCI Emerging
Market in May 2017.While,the FTSE classifies PSX as a Secondary Emerging
Market.
Pakistan stock exchange
Type : Stock exchange
Location: Karachi
Pakistan stock exchange Founded : January 11, 2016; 2 years ago
Owner : Government of Pakistan Currency Pakistani
PSX was established on 11 January 2016 after the merger of individual stock
exchanges of Karachi, Lahore and Islamabad. PSX's origin's where laid with the
establishment of the Karachi Stock Exchange in 1947, the Lahore Stock Exchange
1970 and the Islamabad Stock Exchange in 1992. As of February 23, 2018, there are
559 companies listed in PSX and the total market capitalisation is $84 billion.
The investors on the exchanges include 1,886 foreign institutional investors and 883
domestic institutional investors along with about 0.22 million retail investors. There
are also about 400 brokerage houses which are members of the PSX as well as 21
asset management companies.v PSX is among the world's best performing stock
market's, between 2009 and 2015 it delivered a 26% a year. In December 2016, PSX
sold 40% strategic shares to a Chinese consortium for $85 million.
The Pakistan Stock Exchange (PSX) came into inception in January 2016 when
the Government of Pakistan decided to merge the three large exchange markets of
the country into one combined market.
Karachi Stock Exchange
UK's Foreign Secretary William Hague rings the closing bell at the Karachi stock
exchange
Founded on 18 September 1947, Karachi Stock Exchange Limited (KSE) was
registered in Pakistan. The Karachi Stock Exchange Limited (KSE), was a stock
exchange located at the Stock Exchange Building (SEB) on Stock Exchange Road,
in the heart of Karachi's Business District, I. I. Chandigarh Road, Karachi, Sindh
Province of Pakistan. It was Pakistan's largest and one of the oldest stock exchange
in South Asia. Karachi Stock Exchange was also listed among 10 best stock markets
in the world in 2015. According Bloomberg, the Pakistani benchmark stock market
index is the third-best performer in the world since 2009. In June 2015, Khaleej
Times reported that since 2009, the Pakistani equities delivered 26 percent a year for
US dollar investors, making Karachi the best-performing stock exchange in the
world. As of 10 July 2015, total market capitalization reached Rs. 7.33 trillion
(US$72 billion approximately).[22][23]

Lahore Stock Exchange

Lahore Stock Exchange is located in Lahore, Pakistan. It was formally inducted into
the national Pakistan Stock Exchange on 11 January 2016. The Lahore Stock
Exchange (Guarantee) Limited came into existence in October 1970, under the
Securities and Exchange Ordinance of 1969 by the Government of Pakistan in
response to the needs of the provincial metropolis of the province of Punjab. It
initially had 83 members and was housed in a rented building in the crowded Bank
Square area of Lahore.
Islamabad Stock Exchange

Islamabad Stock Exchange or ISE was the youngest of the three stock exchanges of
Pakistan and is located in the capital of Pakistan. Islamabad stock exchange (ISE)
was incorporated as a guarantee-limited company on 25 October 1989 in Islamabad.
ISE tower is a 22-storey building, which makes it the second highest building of
Islamabad after the Telecom Tower. Area covered by the building is 562,629 sq ft
(52,269.9 m2), it consists of three levels of basements and ground plus 18 floors
above.
Pakistan Stock Exchange formally launched

PSX was launched on 11 January 2016.

ISLAMABAD: Finance Minister Ishaq Dar on Monday inaugurated the Pakistan
Stock Exchange, saying on the occasion that's the exchange's launch was a historic
day for Pakistan, one that could be the start of a new era. A new integrated national
bourse, the Pakistan Stock Exchange began functioning Monday, replacing the stock
markets of Karachi, Lahore and Islamabad as all three exchanges have now been
formally inducted into the unified PSX.
the Karachi Stock Exchange held a two-day pre-production mock trading session for
all certificate holders of the three bourses on Saturday and Sunday
The integration is expected to help reduce market fragmentation and create a strong
case for attracting strategic partnerships necessary for providing technological
expertise and assistance.
“I think Pakistan has a great future and I have great faith but we still have to go a
long way,” said Dar during his address at the ceremony. He said a number of
countries had shown interest for investment in Pakistan in different fields
The finance minister said a stock exchange can play a major role in the development
of an economy, and assured that his ministry will continue to offer support and
assistance.
Dar said the PML-N government has put in untiring efforts focusing on “the four Es
– economy, extremism, energy, and education. he said, the country was performing
well on all metrics, with the economy now showing signs of consolidation.
“Now the predictions are that Pakistan will take off and the PSX will play a critical
role in this process.”
The integration of the three exchanges has completed the second phase of the
Stock Exchanges Demutualisation and Integration Act 2012, passed by a joint
session of parliament.

Methods and Procedure of Stock Exchange

All the exchanges are organized on the same general plan. Members are admitted
on payment of dues, provided a membership. The seat has been purchased from
some member who wishes to retire. The membership can also be purchased.
However, is not sufficient in itself to guarantee admission. The membership
committee for any reason which the think decline to accept the applicant.
Seats on the leading stock exchanges usually sell at very high price. Their value
shows a great deal from time to time, depending upon the amount and
profitableness of the business. A price of $70,000 to $80,000 for a seat on the New
York Stock Exchange is not uncommon, though within recent years as little as
$30,000 has been paid.
The brokers who hold membership on an exchange are required to charge standard
commissions for buying and selling. The brokerage on each transfer of a security is
1/8 % of the par value and $1.25 per thousand dollars thus the normal difference
between the buying price and the selling price of a stock exchange security is
1/4%.
A certain portion of the brokers are known as "scalpers" and make it their sole
business to take advantage of quick fluctuations in prices. A broker of this type
may buy 1,000 shares with the full intention of reselling within a few minutes or, at
any rate, before the close of the day. He is satisfied if he makes a profit of 1/8 to
1/4 on the transaction.
Other members of the Stock Exchange never appear but operate entirely through
their fellow brokers. The advantage is that the regular commission on transactions
for fellow brokers is reduced to the very low figure of $2 per hundred shares. The
great majority of the brokers do little or no buying and selling on their own account
but are satisfied with handling the orders given them by their customers.
The period of settlement comes only once a fortnight. Three days are allowed for
checking up and turning in records of purchases and sales, for giving to brokers the
names of the people to whom their certificates are to be transferred, and for making
payment and accepting delivery

Trading Procedure on the Stock Exchange

In order to purchase or sell the securities on the stock exchange I am going to
discuss the follow Steps
Selection of Broker;
A broker is a member of stock exchange by which securities can be purchased and
sold.
Placing the Order;
There are three parties which are involved in the dealing of shares.
1. The Stock Broker
2. The client
3. The Jobber
The Stock Broker act as an agent and contact with the jobber in the stock exchange
on behalf of the client
Preparing the contract note:
The stock broker prepares the contact note that contains the following information:
Name and the address of the stock broker
The name and address of the jobber.
The type and price of the share
The commission of the broker
The date of transaction
Settlement:
In case of ready delivery contract, the buyer pays the money and the seller delivers
the securities one same day. In the case of forward delivery contract settlement are
done in a week or once in a month

Participants of the Stock Market

There are various participants of The Stock Market, and I outline a few of them
here
Stock Investor
An Investor is an individual/Party that commits money to investment products with
the expectation of financial return. Generally, the primary concern of an investor is
to minimize risk while maximizing return, who is willing to accept a higher level
of risk in the hopes of collecting higher return of profit. Stock investors are firms
or individuals who purchase stocks with the intention of holding them for an
extended period of time, usually several months to years.
Stock Traders
Stock traders usually try to profit from short-term price volatility with trades
lasting anywhere from several seconds to several weeks.
Market Maker
A Market Maker is a broker-dealer firm that accepts the risk of holding a certain
number of shares. Each market maker competes for customer to show the number
of shares which is to be sell. Once an order is received, the market maker
immediately sells from its own inventory or seeks an offsetting order. This process
takes place in mere seconds.
Floor Trader
A Floor Trader is a member of a stock or commodities exchange who trades on the
floor of that exchange for his or her own account. The floor trader must abide by
trading rules similar to those of the exchange specialists who trade on behalf of
others.
Floor Broker
Basically, floor brokers receive orders from their firms, which have been placed by
the firms’ clients, and executes these orders at the best possible prices.
Broker Dealer
A Broker-Dealer is a company or other organization that trades securities for its
own account or on behalf of its customers.

Rules of Stock Market

1. Focus on Price
2. Practice before you jump in
3. Don't Try to Out-Think the Markets

STOCK MARKET SIZE

Stock market size is indicated by the ratio of market capitalization to GDP.
indicates that with respect to size, Pakistan’s stock market is still one of the
smallest apart from some African and Latin American emerging markets. One of
the reasons for this low capitalization ratio is the general level of illiteracy and in
particular financial illiteracy. According to an estimate, only about half a percent
of the population invests in the stock market. Generally, the investment in Pakistan
is in land holdings, real estate properties, bank assets, gold and cash holdings. The
stock market is generally not seen as a means of mobilising saving and diversifying
risk. At the corporate level, the family firms which had political connections
enjoyed cheap loans from the government sector banks which are often never paid
back. Khawaja and Mian (2005) show that politically connected firms in Pakistan
borrow 45 percent more and have 50 percent higher default rates than non-
politically connected firms and such preferential treatment occurs exclusively in
government banks. Also due to lack of entrepreneur skills of the managers of
family based firms the rate of retained earning is higher through which future
investment can be financed.
Trading Procedure on a Stock Exchange
1. Selection of a Broker
The first step is to select a broker, who will buy/sell securities on behalf of
the speculator/investor. This is necessary because trading of securities can
only be done through SEBI registered brokers, who are members of stock
exchange. Brokers may be individuals, partnership firms and corporate
bodies.
2. Opening Demat Account with Depository
The next step is to open a demat account. Demat (Dematerialised) account
refers to an account which an Indian citizen must open with the depository
participant (banks and stock brokers) to trade in listed securities in
"electronic form.
The securities are held in the electronic form by a depository. ‘Depository’ is
an institution/organisation which holds securities (e.g. shares, debentures,
bonds, mutual funds, etc) in electronic form, in which trading is done.
3. Placing the Order
The next step is to place the order with the broker. The order can be
communicated to the broker either personally or through telephone, cell
phone, e-mail, etc.
The instructions should specify the securities to be bought or sold and the
price range within which the order is to be executed. Only the securities of
listed companies can be traded on the stock exchange.
4. Executing the Order
According to the instructions of the investor, the broker buys or sells
securities. The broker, then issues a contract note. A copy of the contract
note contains the name and the price of securities, names of the parties,
brokerage charges, etc. It is duly signed by the broker.
5. Settlement
This is the last stage in the trading of securities done by the brokers on
behalf of their clients. The mode of settlement depends upon the nature of
the contract. Equity spot markets follow a T + 2 rolling settlement. This
means that any trade taking place on Monday gets settled by Wednesday.
Stock, exchange operates from Monday to Friday between 9:55am and
3:30pm. Each exchange has its own clearing house, which assumes all
settlement risk.

Roles of Stock Exchange in Pakistan Economy

 Role of Stock Exchanges are varied and highly important in the
development of economy of a country. They measure and control the growth of a
country.

Stock markets are the places, where exactly you do your business. Your stock
trading transactions are executed at the stock exchanges through your broker,
unless you have a membership with that exchange, which enable you to trade
directly.

Stock exchange apart from being hub of primary and secondary market, they have
very important role to play in the economy of the country. Some of them are listed
below.

 Raising capital for businesses

Exchanges help companies to capitalize by selling shares to the investing public.
 Mobilizing savings for investment
They help public to mobilize their savings to invest in high yielding economic
sectors, which results in higher yield, both to the individual and to the national
economy.
 Facilitating company growth
They help companies to expand and grow by acquisition or fusion.
 Profit sharing
They help both casual and professional stock investors, to get their share in the
wealth of profitable businesses.
 Corporate governance
Stock exchanges impose stringent rules to get listed in them. So listed public
companies have better management records than privately held companies.
 Creating investment opportunities for small investors
Small investors can also participate in the growth of large companies, by buying a
small number of shares.
 Government capital raising for development projects
They help government to rise fund for developmental activities through the issue
of bonds. An investor who buys them will be lending money to the government,
which is more secure, and sometimes enjoys tax benefits also.
 Barometer of the economy
They maintain the stock indexes which are the indicators of the general trend in the
economy.They also regulate the stock price fluctuations.

Listing of securities on stock Exchange

All securities are not dealt on stock exchange. Only those securities are sold or
purchased which are included in trading list of the stock exchange. In order to get a security
listed on stock exchange for trading purposes, the company issuing such a security must make
an application along with following prescribed documents.

o Copies of memorandum, articles, prospects, directors report, balance sheet

and agreement with under writers.
o Specimen copies of shares, debentures, certificates, letter of allotment and
acceptance, etc.
o Particulars regarding capital structures.
o A statement showing the distribution of shares.
o Particulars of dividends and each bonus declared since its incorporation.
o Particulars of shares and debentures for each, permission is required.
o A brief history of the company’s activities since its incorporation.

After the scrutiny of application, if the stock exchange authorities are satisfied,
they call upon the company to execute the listing agreement. The listing agreement
contains the following conditions and obligations:

o The company must be fair to all the applicants for shares. In the case of over
subscription, no undue preference will be shown to any particular class of
applicants.
o To notify stock exchange about the date of the board meeting at which decision of
dividend is taken.
o To forward the copies of its annual accounts duly audited to the stock exchange.
o To notify the stock exchange, about any material change or nature or feature of the
company’s business.
o To notify the stock exchange any change in the capital of the company.
 o To notify the issue of any new shares including bonus shares.
o To comply with all the requirements of the listing agreement and not to commit any
breach of any condition.
o To notify the stock exchange of any occasion this will result in redemption or
cancellation of any listed security.
o To avoid, the establishment of a false market for the listed securities.
o To supply the stock exchange any other information necessary to enable the
shareholders to know about the company’s position.

Importance of stock exchange

While stock exchanges are often associated with wealth creation and capitalism,
they are much more than a place for brokers to buy and sell shares of companies.
Stock exchanges allows businesses access to capital and the opportunity to enhance
their visibility and public image. Savvy businesses can harness the power of stock
exchanges to grow and enhance their companies. While significant financial and
regulatory costs are associated with being listed on a stock exchange, the benefits
far outnumber the disadvantages.
 Access to Capital
A 2012 National Small Business Association survey revealed that one of the
major impediments to business growth was a lack of affordable capital.
Companies listed on a stock exchange can quickly raise affordable capital by
issuing more shares for investors to purchase. The capital raised from the
issuance of shares can be used to help the company grow and pay for different
business costs.
 Enhanced Profile
Companies listed on a stock exchange are much more recognizable and visible
than their privately held counterparts. The increased visibility that comes with
being listed on an exchange can help a company attract new clients and
customers, and it draws press attention that might be difficult and expensive
for the company to draw on its own.
 Ability to Attract Better Employees
High quality employees are attracted to employers that have name recognition
and visibility. Stock exchanges can help companies become household names
and better attract employers capable of making the company more profitable.
 Because of the increased access to capital, companies are also able to better
compensate employees to keep them from moving to competitors.

 Increased Visibility
There may be no better PR move for a company than to go public, as the
process generates free publicity and excitement in the marketplace for the
company. A successful IPO also results in a flood of cash for a newly public
company, and this cycle can be repeated down the road with secondary
offerings of additional stock. With this additional money, companies can
further expand their operations, or allow companies to offer more lucrative
share option packages to employees.
 Reduction of the Cost of Other Capital
Going public reduces the costs of obtaining capital through bank loans. Banks
view publicly traded companies as less of a credit risk than their privately held
counterparts, because publicly traded companies have access to other capital
and the auditing requirements for public companies make their financial
condition more transparent.

Benefits of Investing in Stocks Versus Disadvantages

There are some benefits of stock investing.

1. Stock ownership takes advantage of a growing economy. As the

economy grows, so do corporate earnings. That's because economic
growth creates income. The fatter paycheck boosts consumer demand,
which drives more revenues into companies' cash registers. It helps if you
understand the phases of the business cycle.
2. Easy to buy. The stock market makes it easy to buy shares of companies.
You can purchase them through a broker, a financial planner, or online.
Once you've set up an account, you can buy stocks in minutes. But first,
learn how to invest in stocks.
3. You make money in two ways. Most investors intend to buy low and
then sell high. They invest in fast-growing companies that appreciate in
value. That's attractive to both day traders and buy-and-hold investors.
The first group hope to take advantage of short-term trends, while the
latter expect to see the company's earnings and stock price grow over
 time. They both believe their stock-picking skills allow them
to outperform the market. Other investors prefer a regular stream of cash.
They purchase stocks of companies that pay dividends. Those companies
grow at a moderate rate.
4. They are easy to sell. The stock market allows you to sell your stock at
any time. That's important if you suddenly need your cash in a hurry.
Since prices are volatile, you run the risk of being forced to take a loss.

There are five disadvantages to owning stocks.

1. You could lose your entire investment. If a company does poorly,

investors will sell, sending the stock price plummeting. When you sell, you
will lose your initial investment. If you can't afford to lose your initial
investment, then you should buy bonds. You get an income tax break if you
lose money on your stock loss. Unfortunately, you also have to pay taxes if
you make money. You pay the capital gains tax.
2. Stockholders are paid last if the company goes broke. Preferred
stockholders and bondholders get paid first.
3. It requires a lot of time. You've got to research each and every company to
determine how profitable you think it will be before you buy stock. You've
got to learn how to read financial statements and annual reports, and follow
your company's developments in the news. You also have to monitor the
stock market itself, as even the best company's price will fall in a market
correction, a market crash, or bear market.
4. It can be an emotional rollercoaster. Stock prices rise and fall every
second. Individuals have the tendency to buy high, out of greed, and sell
low, out of fear.
5. You compete against professionals. Institutional investors and traders have
more time and knowledge to invest. Find out how to gain an advantage as
an individual investor.

Factors that can affect stock exchange

Many factors can cause the price of a stock to rise or fall – from specific news
about a company’s earnings to a change in how investors feel about the stock
market in general.
Company news and performance
Here are some company-specific factors that can affect the share price:
 o news releases on earnings and profits, and future estimated earnings
o announcement of dividends
o introduction of a new product or a product recall
o securing a new large contract
o employee layoffs
o anticipated takeover or merger
o a change of management
o accounting errors or scandals

Industry performance
Often, the stock price of the companies in the same industry will move in tandem
with each other. This is because market conditions generally affect the companies
in the same industry the same way. But sometimes, the stock price of a company
will benefit from a piece of bad news for its competitor if the companies are
competing for the same market.

Investor sentiment
Investor sentiment or confidence can cause the market to go up or down, which can
cause stock prices to rise or fall. The general direction that the stock market takes
can affect the value of a stock:

 bull market – a strong stock market where stock prices are rising and investor
confidence is growing. It’s often tied to economic recovery or an economic
boom, as well as investor optimism.
 bear market – a weak market where stock prices are falling and investor
confidence is fading. It often happens when an economy is in recession and
unemployment is high, with rising prices.

Economic factors

1. Interest rates
The Bank of Canada can raise or lower interest rates to stabilize or stimulate the
Canadian economy. This is known as monetary policy. If a company borrows
money to expand and improve its business, higher interest rates will affect the cost
of its debt. This can reduce company profits and the dividends it pays shareholders.
As a result, its share price may drop. And, in times of higher interest rates,
investments that pay interest tend to be more attractive to investors than stocks.

2. Economic outlook
If it looks like the economy is going to expand, stock prices may rise. Investors
may buy more stocks thinking they will see future profits and higher stock prices.
If the economic outlook is uncertain, investors may reduce their buying or start
selling.

3. Inflation
Inflation means higher consumer prices. This often slows sales and reduces profits.
Higher prices will also often lead to higher interest rates. For example, the Bank of
Canada may raise interest rates to slow down inflation. These changes will tend to
bring down stock prices. Commodities however, may do better with inflation, so
their prices may rise.

4. Deflation
Falling prices tend to mean lower profits for companies and decreased economic
activity. Stock prices may go down, and investors may start selling their shares and
move to fixed-income investments like bonds. Interest rates may be lowered to
encourage people to borrow more. The goal is increased spending and economic
activity. The Great Depression (1929-1939) was one of the worst periods
of deflation ever.

5. Economic and political shocks

Changes around the world can affect both the economy and stock prices. For
example, a rise in energy costs can lead to lower sales, lower profits and lower
stock prices. An act of terrorism can also lead to a downturn in economic activity
and a fall in stock prices.

6. Changes in economic policy

If a new government comes into power, it may decide to make new policies.
Sometimes these changes can be seen as good for business, and sometimes not.
They may lead to changes in inflation and interest rates, which in turn may affect
stock prices.
7. The value of the dollar
Many companies sell products to buyers in other countries. If the dollar rises, their
customers will have to spend more to buy goods. This can drive down sales, which
in turn can lead to lower stock prices. When the price of the Canadian dollar falls,
it makes it cheaper for others to buy our products. This can make stock prices rise.

Conclusion
A well-diversified portfolio will provide most of the benefits and fewer
disadvantages than stock ownership alone. That means you should have a mix of
stocks, bonds, and commodities. Research shows that, over time, it's the best way
to gain the highest return at the lowest risk. Find out how bonds affect the stock
market.

You should also own different types of stocks. That includes large cap, mid cap,
and small cap companies. Own companies located in the United States, Europe,
Japan, and emerging markets. It allows you to take advantage of growth without
being vulnerable to any one stock.

Another way to gain diversification is through mutual funds. That allows you to
own hundreds of stocks that are selected by the mutual fund manager. That means
you are less vulnerable to any individual stock's performance.

How much of each should you have? Financial planners suggest that you establish
your asset allocation based on your financial goals. You should also respond
to changes in the business cycle. Be aware where the economy is in the current
business cycle.