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ON LINE TRADING
The Information Technology has brought out revolutionary change in the operations of stock
exchanges in Pakistan. The traditional method trading without the use of technology was time
consuming and inefficient further, it imposed limits on trading volumes and efficiency. To
overcome those defects and to provide efficient and transparent services, the NSE has
introduced a national-wide ON-LINE fully automated Screen Based Trading System (SBTS).
Now, other stock exchanges have been forced to adopt SBTS and today Pakistan can boast that
almost 100% trading take place electronic order matching.
Under SBTS, a member can punch into the computers quantities of securities and the prices at
which he likes to transact the transaction. It is executed as soon as it finds a matching sale or
buy order from a counter party. Thus, technology is used to carry the trading hall of the
exchanges to the premises of the brokers. NSE has carried the trading the internet and the hand
held devices through WAP for the convenience of the mobile investors.
SMALL BEGINNING
Compared to the Western countries, ON-LINE trading is still in its infancy in Pakistan. With
trading turnover at around Rs. 10 crores per day from ON-LINE trading compared to a
combined gross turnover of around Rs. 9000-10,000 crores handled by the BSE and NSE
together, ON-LINE trading has a long way to go. With some ten dotcom players, such as
icicidirect.com, investsmart, 5paisa.com, Pakistan bulls, and a host of brokers, such as
kotakstreet, sharekhan, motilaloswal, Geojit Securities and duttstock, entering the ON-LINE
ring promises exciting times ahead.
millions of people in USA. Lot of NRI's i know play in US stock market even when they come
to Pakistan for holidays via website of eSchwabe.
There are other serious players like E*trade, DATEK ON-LINE etc. All this companies ask you
to start account with US $5000 and you can buy and sell stock using these funds. They also
issue you a check book which you can use to make payments from this account. Or use their
ATM card to withdraw cash from your stock trading account.
Today practically every big name brokerage firm offers ON-LINE stock trading as it
reduces their costs. Earlier they had army of brokers on phone with clients executing trade,
which is done by computers accepting orders from clients directly. This firm now offers
human access to high net worth accounts, and to rest at charge per trade.
from time to time to promote equity trading. The sophisticated technology and statutory
provisions governing equity trading lead to many changes in Pakistann market. Therefore it is
strongly felt necessary that a through scrutiny and assessment of trading pattern is
indispensable. After the review of literature it is also felt necessary to understand the changes
that were incorporated from time to time in equity segment and their impact on trading
patterns.
Every trading pattern and its respective influence on volume of trading have both
positive and negative side. For instance banning of BADALA system (reverse system) helped
small investor reduced their risk through rollover settlement which is a positive side. But at
the same side it reduces the liquidity in market which is a negative side. Therefore this project
work finds it necessary to track all such influences.
RESEARCH METHODOLOGY
This report is based on primary as well secondary data, however primary data
collection was given more importance since it is overhearing factor in attitude studies.
One of the most important users of research methodology is that it helps in identifying
the problem, collecting, analyzing the required information data and providing an
alternative solution to the problem .It also helps in collecting the vital information that
is required by the top management to assist them for the better decision making both
day to day decision and critical ones.
Data sources:
Project is based on primary data & ondary data can be used only for the reference.
Research has been done by primary data collection, and primary data has been collected
by interacting with various people. The secondary data has been collected through
various journals and websites.
Limitation:
Possibility of error in data collection because many of investors may hve not
given actual answers of my questionnaire.
When a business makes a profit, it can share that money with its stockholders by issuing
a dividend. A business can also save its profit or re-invest it by making improvements to the
business or hiring new people. Stocks that issue frequent dividends are income stocks.
Stocks in companies that re-invest their profits are growth stocks.
Brokers buy and sell stocks through an exchange, charging a commission to do so. A broker
is simply a person who is licensed to trade stocks through the exchange. A broker can be on
the trading floor or can make trades by phone or electronically.
An exchange is like a warehouse in which people buy and sell stocks. A person or computer
must match each buy order to a sell order, and vice versa. Some exchanges work like auctions
on an actual trading floor, and others match buyers to sellers electronically. Some examples
of major stock exchanges are:
THE NEW YORK STOCK EXCHANGE, which trades stocks auction style on a
trading floor
Worldwide Stock Exchanges has a list of major exchanges. Over-the-counter (OTC) stocks
are not listed on a major exchange, and you can look up information on them at the OTC
Bulletin Board or PinkSheets.
When you buy and sell stocks online, you're using an online broker that largely takes the
place of a human broker. You still use real money, but instead of talking to someone about
investments, you decide which stocks to buy and sell, and you request your trades yourself.
Some online brokerages offer advice from live brokers and broker-assisted trades as part of
their service.
If you need a broker to help you with your trades, you'll need to choose a firm that offers that
service. We'll look at other qualities to look for in an online brokerage next.
CHOOSING A BROKER
Before you can trade stocks online, you have to select an online broker. Your online
broker will execute your trades and store your money and stock in an account. The
online trading industry has seen lots of mergers and acquisitions, but there are still
many firms to choose from. Different firms also offer different levels of help, account
types and other services. Here are some things you should keep in mind as you look for
a broker.
HOW MUCH MONEY YOU PLAN TO INVEST. Most firms require investors to
have a certain amount of money to open an account. This is different from a minimum
account balance -- although most brokerages have those, too.
HOW FREQUENTLY YOU PLAN TO MAKE TRADES. Are you going to buy one
stock and hold on to it? If so, you'll need to make sure the brokerage doesn't charge a fee for
account inactivity. On the other hand, if you're going to make lots of trades, you'll want a
lower fee per trade. Regardless of how much you plan to use your account, you should
evaluate how much using the site will cost you.
ANY OTHER SERVICES YOU MAY WANT. A few trading sites let you buy and
sell stocks but not much else. Others are more like major banks, offering debit cards,
mortgage loans and opportunities for other investments like bonds and futures.
Some sites, such as Keynote and Smartmoney, rate online brokerages based on success rates,
customer service response time, trading tools and other factors. They can help you make a
decision as you shop around for the best trading site for your needs, but keep in mind that
there are no official standards for ranking or evaluating brokerages.
As with any site that requires your personal and financial information, you should make sure
your online broker has good security measures, including automatic logouts and transmission
encryption. You should also make sure your brokerage is reputable. The Investing Online
Resource Center has a good list of links you can use to make sure your firm is legitimate.
INVESTOR PROTECTION ORGANIZATIONS
Several national and governmental organizations educate investors and protect the integrity of
the market. These are good sources for reliable information about making investments. They
include:
private-sector regulator
brokerage track and report your investments according to tax regulations and the PATRIOT
Act.
In addition to providing this information, you must make several choices when you create an
account. With most brokerages, you can chose between individual and joint accounts, just
like at a bank. You can also open custodial accounts for your children or retirement accounts,
which are often tax-deferred. Unless you pay a penalty, you can usually retrieve earnings
from a retirement account only when you retire.
Next, you must choose between a cash account and a margin account. You can think of a cash
account as a straightforward checking account. If you want to buy something using your
checking account, you have to have enough money in the account to pay for it. Using a cash
account, you have to have enough money to pay for the stock you want.
A margin account, on the other hand, is more like a loan or a line of credit. In addition to the
actual cash in the account, you can borrow money from the brokerage based on the equity of
the stock you already own, using that stock as collateral. Then, you can buy additional stock.
Your margin is the equity you build in your account.
According to the Federal Reserve Board, you must have at least 50 percent of the price of the
stock you wish to purchase in your account. In other words, if you want to purchase $5,000
worth of stock, the value of the cash and stock in your account must be at least $2,500. You
can borrow the other $2,500 from the brokerage.
Once you have made your purchase, you must keep enough equity in your account, also
called your equity percentage, to cover at least 25 percent of the securities you have
purchased. Here's how the brokerage determines this number:
The market value of your stock minus the amount of the loan you took to buy the
stock is your EQUITY AMOUNT.
Making Trades
Once you've opened and funded your account, you can buy and sell stocks. But before you do
that, you want to get a real-time stock quote to confirm the current price of the stock. Your
brokerage may provide real-time quotes as part of your service. Many free financial news
sites offer delayed quotes, which are at least twenty minutes behind the market. If the market
is moving quickly, a delayed quote can be substantially different from the real trading price.
Once you've gotten your quote and decided you want to make a trade, you can choose to
place a market order or a limit order. A market order executes at the current market price of
the stock. A limit order, however, executes at or better than a price you specify. If the price
doesn't reach the limit you set, your trade will not go through.
Some brokerages offer additional options, often used to prevent high losses when a stock
price is falling. These include:
STOP ORDER - A form of market order, this executes after the price falls through a
point that you set. The order executes at market price, not at the stop point.
STOP LIMIT ORDER - These are like stop orders, but they execute at a price you
set rather than market price. In rapidly moving markets, the broker may not be able to execute
your order at your set price, meaning that the stock you own may continue to fall in value.
TRAILING STOP ORDER - Like a stop order, a trailing stop executes when the
price falls through a point you set. However, its selling price is moving instead of fixed. You
set a parameter in points or as a percentage, and the sale executes when the price falls by that
amount. If the price increases, though, the parameter moves upward with it. So, if a stock is
trading at $20 per share, and you set a trailing stop order with a three-point parameter, your
initial selling price would be $17 per share. But if the price then increases to $25 per share,
your new selling price would be $22 per share.
You must also select whether your order stays active until the end of the day, until a specific
date or until you cancel it. Some brokerages allow you to place "all or none" or "fill or kill"
orders, which prevent a partial rather than complete exchange of the stocks you want to trade.
Contrary to many people's perceptions, making trades online is not instantaneous, even if
you're placing a market order. It can take time to find a buyer or seller and to electronically
process the trade. Also, even though you can access your account and place buy and sell
orders twenty-four hours a day, your trades execute only when the markets are open. An
exception is if your firm allows after-hours trading, which is riskier due to the reduced
number of trades taking place.
PUMP-AND-DUMP SCHEMES - People spread the word about a "sure thing" stock
via online message boards, online stock newsletters, email and other methods. The resulting
interest in the stock drives up the price. The organizers of the scheme sell their stocks for a
huge profit, and then stop promoting it. The price plummets, and investors lose money.
FRAUDULENT IPOS - Some investors like IPOs because they provide a chance to
"get in on the ground floor" and to make a substantial profit. Some scammers, though, spread
the word about an upcoming IPO for companies that never intend to go public or that don't
exist. Then, they abscond with investor' money.
stockbroker. Online brokerage firms charge flat rates for each transaction, which are usually
extremely inexpensive by comparison.
The second benefit of online stock trading is that you have full control. This was always one
of the biggest complaints when brokers held a stranglehold on the market. They would often
refuse to perform a trade they thought was a poor investment. If they saw any flaws in an
investment, they had full authority to deny the trade to their clients. While this could save the
potential client from making a bad investment, it could also prevent them from taking a risk
that would pay off enormously. Online stock trading removes the middleman between traders
and the stocks they want.
The third benefit of online stock trading is immediacy. Using the daisy chain of investor to
broker to trade to payoff was sometimes too time consuming to execute the trade in time,
which is a danger in the world of stocks where time is money and seconds count. Trading
online allows immediate trading for the investor and real-time updates regarding a stocks
performance. The lag between the investor's purchase and the actual time the stocks are
bought has been reduced to nil.
The fourth benefit of online stock trading is being able to make as many or as few trades as
you desire. Brokers usually required a minimum trade allotment, which meant that an
individual could not make a single trade for a paltry sum. They were forced to adhere to the
brokers guidelines. This prevented casual traders from being able to trade whatever volume
of investments they wanted.
The stock market has come a long way from the archaic days of faceless men in pinstripe
suits making deals in boardrooms that toyed with the finances of the entire country, if not the
world. Now it is just as easy for anyone to trade online while sitting in the comfort of his or
her own home. The benefit of online stock trading is that it wrests control of the market from
the brokers and puts it, along with his or her financial future, into the hands of the individual.
Many customers, who have chosen to trade shares online today , had at one
Point of time been trading through offline brokers .After realizing the advantages of
trading shares online, they have switched over to online trading now .However,before
choosing an online trading site ,all the sites should be compared in order to form a
decision.
Online trading has made it possible for anyone to have easy and efficient access
to more reports and charts than it was previously possible if one when to brokers
office .Thus, we have access to a lot more information online to self teach
ourselves.
It eliminates the risk of bad deliveries, which in turn eliminates all costs and
wastage of time associated with follow up for rectification.
This reduction in risk associated with bad delivery has lead to reduction
in
Screen-based trading facilitates the investor to keep a track of the transaction from the
source to the end .He can punch in the orders and see the results at the bottom of the
screen .Thus, one can get instant trade confirmation.
Multinational organizations ,since is no longer a legit issue. Being online does not
identify the size of any particular organization.
Online trading has allowed companies to locate themselves were they want, as
physical location is not an issue anymore. Companies can establish themselves
according to their gains and losses, for instance, where tax(sales and value-added
taxes) is best suited to them.
Online trading gives control to individuals and they can exercise it over their
accounts thus comprehend what is going on the trade. It is like going back to school
and re-educating oneself on how to trade online.
Individuals benefit by saving comparatively a lot more when trading online as the cost
per trade is less.
Individuals can invest in a variety of products, unlike earlier when people bought
bonds, mutual funds, and stocks for long-term basis. Now they can invest in stocks,
and index options, mutual funds, individuals, government,
Corporate, municipal bonds, various types of IRA account ,mortgages and even
insurance.
Online trading has it possible for one to find investment options that were not
available on a regular basis, like off-beat net stocks ,eccentric unique things and
trading in global market.
have to take the pain of going the stock exchange or to his brokers office .He
can also do away with the need of calling up his broker frequently only to enquire
about the prices of various scripts, Internet trading connects the stock exchanges
directly of the investor ,who should make sure that the online trading site ,he selects
provides him the trading screen ,which uses the push technology to display prices .
Using the push technology the trading
screen display the real time prices of 10 to 15 script s at a glance ,unlike pull
technology where in one needs to type the quote every time one needs the price.
Internet has made it possible for broking firms to transmit key market
Information to all clients at one go. Market watch screen gives live tick update on
the desktop ,where by the investor can set a number of scripts of his choice, which
will keep ticking through streaming quotes without manual intervention .
Clients find it easier and convenient to interact with their broker in a web-enable
environment. In the past there were instances of brokers misleading the information
given to them by their clients , because of communication lags. This led in effect
ruined several investors. The internet ensures speedy and correct flow of information
between all users.
Online trading sites provide professional advice to investors . Many investors are not
knowledgeable about the stock markets and need advice about their investment
decisions.
Some of them (investors)also need some hand-holding especially when the market
are falling and enmeshed in rocky times .The investor can also send
Many people derive a substantial portion of their income from trading in the stock
markets . For an experienced
trader internet
land of plenty .Besides information research and professional advice, online trading
can also offer technical advice that can help all who engaged in trading.
In the past there are instances that small investors encountered a situation .
When he desperately wanted to place an order, but his brokers line were
constantly engaged . When he finally managed to get through his broker , hecould not
get the best price .Online trading can eliminate his problem . All he has to do is log
on to the site and place the order.
Also , on the internet a customer can trade from his home or from any other place,
it is convenient for him . Thus brokers who would not otherwise entertain
outstation clients.
For example , Geojit Securities, which does 10% of its business through the net, has a
lot of non-resident Pakistani from Gulf as its clients and nearly 50% of the internet
volume comes from the NRI clients.
Even when the market is closed , an online investor can make his trade .
Although, his trades will not be executed at that time but atleast he can act
immediately. Many times his next morning not permit him to go to the brokers
office or even phone him for placing the order .Then there are always the hassles of
calling up the broker a couple of times for confirmation .Rather , he can now place
his order the previous evening ,knowing that it will through automatically
Online trading also helps in portfolio management .An investor can control
the whole process, from research to order entry, at his own convenienc.He can
The Internet has indeed revolutionized investing. Access to financial planning tools that
previously were accessible only to the rich are now available online to everyone and the good
thing isits for free! Investors can now learn about stocks (and other financial instruments,
too) and more importantly, now have better opportunities to invest and be more engaged with
their investments because of the internet.
In the stock market, gone are the days when the only option for stock investing is through a
broker-agent (who does the transaction for you, provide recommendations and the likes) in
order for you to trade stocks. Although the services of a broker-agent is still very much
available and relevant; but because of the internet, anyone willing to invest in stocks can now
opt for a DO-IT-YOURSELF stock trading. Just as the internet revolutionized investing,
online trading has revolutionized the stock market and how the investor can participate in the
market.
And in the Philippines, there are several stock brokerage houses that offer online trading.
These are those firms whove got the resources to subscribe to third-party trading system
providers, and better still, those who have the capabilities and expertise to create, develop and
manage their own trading platforms for the Philippine market.
These online trading systems and platforms enable anyone wanting to invest in stocks to get a
feel of online trading through the Free Trial account offers; as well as online registration for
a trading account; even up to real-time funding of investments; all these with just a few clicks
of the mouse and without leaving the comforts of their homes and offices.
As soon as the online account is activated upon submission of requirements, which could be
considered as very minimal (2 valid IDs and signed Customer Account Information Form),
the investor now has the power in his hands to make his investment grow.
So what makes online stock trading a better choice? Here are the top reasons, advantages and
benefits:
1. Minimum initial investment. Compared to other forms of investment, an online trading
account requires just a minimum initial funding of Php5,000 only. (This amount is so way
below the amount one would be willing to pay for the latest mobile phone or tech gadgets,
right?) And this amount goes to your account in full, available for trading, without
registration or membership fee being deducted.
2. Lowest transaction fees and charges. Online trading the lowest among all investment
instruments. And since its D-I-Y (Do-It-Yourself), whether its the commission rate of the
brokerage firms for the use of their trading facility or the government-mandated fees and
charges, it is computed in just .00xx percent of your trade values. Thats a bargain compared
to the double or even triple-digit gains an investor could get from the stock market.
3. Convenience. Since the internet is available 24/7, so is your trading access! You can now
trade anytime, anywhere, as long as there is internet connection. You can post your buying or
selling orders even when the market is closed and as soon as it opens the next trading day;
your orders immediately get processed by the Exchange.
You also get real-time, live-stream and up-to-date news, data and account information that
you need, whenever you need them, to make the best trading decisions.
You can even get to choose whatever device you prefer to do your trading transactions with
either laptop, tablet or mobile phone and other internet-capable devices. With online trading
you can trade any way!
4. Freedom and Empowerment. Technology is a crucial element than widens ones choices of
investments, as well as a potent tool on how to grow investments. And online stock trading
offers the latest and robust technology that gives both the freedom and empowerment any
investor is looking for. Since online stock trading is Do-It-Yourself, the investor himself has
the freedom to buy or sell his stocks in a way that best suits his investment goals and time
horizons. Firms that offer online platform also have in their consoles the tools and features
that are useful in managing ones portfolio from tracking investment growth up to cashingout investment gains.
Online stock trading is truly an investment avenue that suits the psyche and lifestyle of Pinoy
investors.
And what better time to go into it than nowin such a time as this when the Philippine stock
market is strongly thriving and when international accolades are very favorable for our
country and our economy.
One piece of important advicewe make an investment because we want to ensure a better
future for ourselves and our loved onesthats why we have to make sure that we choose the
right partner for our investment. So choose the online stock trading broker that lives up to its
claims and delivers more than what it promises.
Disadvantages of Online Trading
The ease and speed of online trading can give the investor a false sense of
security and encourage him to trade more frequently without paying any heed to
market basics like, researching a company or knowing the risk he is going to assume.
The concept of chat rooms, which has become very popular with the investors ,may
provide them with misleading information . chat room participants are often paid
to highlight certain stocks.
The investor
should
familiarize
himself
software provided to him. Any mistake made while inputing an order can cause
him significant financial loss. Moreover, he will be responsible for any losses caused
by lack of knowledge and/or experience .when an order is placed and executed, he
becomes liable for payment of the securities.
specialized
software
systems.
Disruptions or failure of any electronic systems utilized may lead the investor with an
open position at which time losses can occur.
Customers trading on-line may have difficulty accessing their account due to high
internet traffic or because of systems capacity limitations .Customers trading through
representatives of on- line firms ,when on-line trading has been disabled or in not
available because of system limitation, may have difficulty
representatives on the telephone during periods of high volume.
reaching
account
CHAPTER 2
ONLINE TRADING SAFETY
These days the vast majority of stock trades take place online. There are still however some
people who prefer not to trade this way. Usually this is because they are afraid that online
trading is not safe. In general this is not an issue.
Online trading is generally considered to be safe and in a lot of ways is safer than using a live
broker. Online trading sites use the same kind of encryption technology that online banks use,
that is 128 bit encryption. There is no way that anybody is going to hack through that. As
long as you stick to a reputable broker you should have no trouble in this regard. The highly
encrypted websites are a much safer way to trade than doing it by phone like you would if
you had a live broker.
password and that you don't use the same one that you use on all of your other accounts. You
also want to make sure that you keep your password safe and that you log out after each
trading session. Also be careful of suspicious email. This is stuff that you should do for all of
your online accounts, but is especially important for your brokerage account because of the
amount of money involved.
While online trading is generally safe in the sense that you are not likely to have your money
stolen, there is of course still the risk that comes with stock trading. Stocks go down in price
all the time and this means that you can lose money. In fact ONLINE TRADING may have
made this problem worse. People know have so much information and get can stock prices at
any time, they can also trade on a seconds notice. This tends to lead to people jumping from
one stock to another which usually ends up costing them money. Really the greatest danger to
online trading is a lack of trading discipline. This is something that you are going to have to
learn for yourself.
returns or any other kind of bait that might be appealing. Before you give any information to
a company, do a little research into the company's background.
The easiest way to find out if an eTrading business is legitimate is to check with the United
States Securities and Exchange Commission. It uses a system known as EDGAR (Electronic
Data Gathering, Analysis and Retrieval) to maintain a comprehensive database of all
companies within the United States, as well as foreign companies that do business in the U.S.
If you cannot find the business asking for your financial information in the EDGAR database,
do not trust it.
View and Verify the Company's Privacy Policy
Reputable eTrading companies are proud of how steadfastly they protect their clients' privacy.
Every legitimate eTrading company should have a lengthy policy that explains exactly how
your information can and cannot be used. Any violation of this trust means that the company
can be sued. If it has a weak privacy policy or none at all do not trust the company.
Check the Company's Encryption
The company should have a certificate from VeriSign, DigiCert or another reputable company
that provides SSL encryption. SSL stands for Secure Socket Layer and is the most common
kind of online encryption available. It is also one of the most secure. As with privacy policies,
a good eTrading company will proudly display its encryption certification. Check with the
company that provides the certification to ensure that they indeed guarantee that all
transactions are safe. Both companies are liable if anything goes wrong with your
information.
Type the Website Address into Your Address Bar
It sounds simple, but many online tricksters create websites that look identical to legitimate
eTrading businesses. It is easy to be lured in to this web of lies because the criminals who
create these sites do everything in their power to make them identical to the originals.
Usually, you can find these through links online or in emails. To avoid these traps, physically
type the address of the company you wish to use into your browser so you know you are
going where you intend to go.
CHAPTER 3
ONLINE TRADING DERIVATIVES
Introduction :
In our present day economy, finance is defined as the provision of money at the time
when it is required. Every enterprise, whether big, medium or small, needs finance to carry
on its operations and to achieve its targets in fact; finance is so indispensable today that it is
rightly said that it is the lifeblood of an enterprise.
The term ownership securities also known as capital stock represents shares. Shares
are the most universal forms of raising long-term funds from the market. Every company,
except a company limited by guarantee, has a statutory right to issued shares.
The capital of a company is divided into a number of equal parts known as shares.
According to Farewell .j, a share is, the interest of a shareholder in the company, measured
by a sum of money, for the purpose of liability in the first place, and if interest in the second,
but also consisting a series of mutual covenants entered into by all the shareholders interest.
Section 2(46) of the companies act, 1956 defines it as a share in the share capital of a
company, and includes stock except where a distinction between stock and shares expressed
or implied.
Share market is of two types. They are cash market and derivative market.
Cash markets are the secondary markets where trading in existing securities is done.
Listing of new issues for investment and disinvestments by savers/investors takes place. It
imparts liquidity or encash ability to stocks and shares. Stock exchange is a market in which
securities are bought and sold and it is an essential component of a developed capital markets.
hedgers, speculators, and arbitrageurs trade in the derivatives market. Hedgers face risk
associated with the price of an asset. They use futures or options markets to reduce or
eliminate this risk. Speculators wish to bet on future movements in the price of an asset.
Futures and options contracts can give them an extra leverage; that is, they can increase both
the potential gains and potential losses in a speculative venture. Arbitrageurs and in business
to take advantage of a discrepancy between prices in two different markets. If, for example,
they see the futures price of an asset getting out of line with the cash price, they will take
offsetting positions in the two markets to lock in a profit.
Derivative products initially emerged as hedging devices against fluctuations in commodity
prices, and commodity-linked derivatives remained the sole form for such products for
almost three hundred years. Financial derivatives came into spotlight in the post-1970 period
due to growing instability in the financial markets.
However, since their emergence, these products have become very popular and by 1990s,
they accounted for about two-thirds of total transactions in derivative products. In recent
years, the market for financial derivatives has grown tremendously in terms of variety of
instruments available, their complexity and also turnover.
In the class of equity derivatives the world over, futures and options on stock indices have
gained more popularity than on individual stocks, especially among institutional investors,
who are major users of index-linked derivatives. Even small investors find these useful due to
high correlation of the popular indexes with various portfolios and ease of use. The lower
costs associated with
various portfolios and ease of use. The lower costs associated with
A derivative is an instrument whose value is derived from the value of one or more
underlying which can either in the form of commodities, precious meat, currencies, bonds,
stock and stock indices. As the price of the wheat derivatives would be determined or based
on the prices of wheat itself.
Given the fast change and growth in the scenario of the economic and financial sector have
brought a much broader impact on derivatives instrument. As the name signifies, the value of
this product is derived of based on the prices of currencies, interest rate (i.e. bonds), share and
share indices, commodities, etc. Not going into very back, financial derivatives just came
into existence in the early 1980s. Here the principal instruments, clubbed under the general
term derivatives, include
1. Futures & Forwards
2. Options,
3. Swaps
4. Warrants
5. Exotic and are the modern tools of financial risk management.
All pricing of derivatives is done by arbitrage, and by arbitrage alone. Here, there is a
relationship between the price of the spot and the price in the futures. If this relationship is
violate, then an arbitrage opportunity is available, and we people exploit this opportunity, the
price reverts back to its economic value. Therefore, arbitrage is the basic requirement for
pricing. The role of liquidity i.e. the low transaction costs is in making arbitrage check up
and convenient. Derivative markets in Brazil are some of the largest markets in the world
even first derivative dealing were started in USA. We can even know that as the prices of the
forward contacts are based on future therefore it can even be termed as derivative instrument.
Derivative contracts have several variants. The most common variants are
forwards, futures, options and swaps. A brief note on the various derivative that are used are
as follows:
Forwards.
where settlement takes place on a specific date in future at today pre agreed price.
Futures.
Or sell an asset at a certain time in the future at a certain price. Future contracts are
Special types of forward contracts means that the former are standardized exchange
Traded contracts.
Options.Options are of two types,
Calls option.
Calls give the buyer the right but not the obligation to buy a
Given quantity of the underlying asset, at a given price on or before a given future
Date.
Puts Option. Puts Option give the buyer the right, but not obligation to sell a
Given quantity of the underlying asset at a given price on or before a given date.
Warrants.
CHAPTER 4
DATA ANALYSIS AND SURVEY
1. Are you aware of online trading?
Particulars
Investors response
% of the sample
Yes
27
90
No
3
10
INTERPRETATION:
From the above graph we can say that 90% of the people are aware of online trading
and 10% of them are not aware of it.
Particulars
Investors response
% of the sample
Yes
19
63
No
11
37
response
no
37%
yes
63%
yes
no
INTERPRETATION:
From the above graph we can say that 63% people actively participate in share market
and 37% of do not participate.
3. Which online investor category you belong to?
Particulars
Investors response
% of the sample
Uncertain
newcomer
10
33
Moderate
active trader
8
27
Active day
trader
8
27
Hands in every
pot
4
13
category
hands in
every pot
13%
uncertain
newcomer
33%
active day
trader
27%
moderate
active
trader
27%
uncertain
newcomer
moderate active
trader
active day trader
hands in every pot
INTERPRETATION:
The above graph depicts that 33% of them are uncertain newcomer, 27% of them belong to
moderate active trader category and active day trader and 13% of them belongs to hand in
every pot category.
4. Do you have a Demat account?
Particulars
Investors response
% of the sample
yes
20
67
no
10
33
responses
no
33%
yes
67%
yes
no
INTERPRETATION:
From the above graph we can say that 67% of the investors have Demat account and
33% of them
doesnt have Demat account.
Yes
23
77
No
7
23
response
NO
23%
YES
NO
YES
77%
INTERPRETATION:
From the above graph we can say that 77% of the people are in favour of demat account
and 20% of them are not in favour of it.
Liquidity
13
43
Convenience
2
7
Regulation
3
10
response
Regulation
10%
Convinienc
e
7%
Rate of
return
40%
Liquidity
43%
Rate of return
Liquidity
Convinience
Regulation
INTERPRETATION:
From the above graph we can say that Liquidity(43%) is most preferable among all the
attributes.
7. Are you aware the nature of risk involved in online trading?
Particulars
Investors response
% of the sample
Yes
25
83
No
5
17
response
17%
yes
no
83%
INTERPRETATION:
From the above graph we can say that (83%)majority of the people are aware of risk involved
in online trading.
9.Do you check brokers activity involved in online trading?
Particulars
Investors response
% of the sample
yes
15
50
no
15
50
Brokers activity
50%
INTERPRETATION:
50%
yes
no
From the above graph we can say that 50% of the investors check brokers activities
and 50% do not check.
10. Do you feel any changes in earlier trading and at present trading?
Particulars
Investors response
% of the sample
yes
30
100
No
0
0
changes
0%
yes
no
100%
INTERPRETATION:
From the above graph we can say that 90% of the people are aware of online trading and
10% of them are not aware of it.
Yes
6
20
No
24
80
convinience
20%
outcry
screen based
80%
INTERPRETATION:
From the above graph we can say that 80% of the people are in favour of screen based
trading and 20% of them in favour of outcry system.
FINDINGS
From the above analysis we have come to this conclusion that most of the people are aware
of online trading and very much interested in screen based trading.
. After this study we can come to this conclusion as below i.e
33.3% of investors are willing to go for option (A),26.7% of investors are willing
to go for option (B)& (C) and 13.3% of investors are willing for option (D)
76.7% of investors are in favour of Demat account . And 23.3% of investors are
not in favour of Demat account.
40% of investors prefer (A)rate of returns, 43.3% of investors prefer (B) liquidity,
6% of investors go for(C) convenience and 10% of investors prefer (D) Regulation.
83.3% of investors are aware of risk involved in online trading .and 16.7% of
investors
are not aware of risk involved in online trading.
50% of investor check brokers activity and 50% does not check.
80% of investors feel screen-based system more convenient and 20% of investors
feel outcry system more-convenient.
CHAPTER 5
RECCOMMENDATION & CONCLUSION
CONCLUSION
Online trading is the new concept in the stock market. In Pakistan, online trading is still at its
infancy stage. Online trading has made it easy to trade in the stock market as now people can
trade while sitting at their home. Now stock market is easily accessible by the people. There
are some problems while doing the trade through the internet. Major problem faced by online
trader is that the investors are loyal to their traditional brokers, they rely upon the suggestions
given by their brokers. Another major problem is that the people don't have full knowledge
regarding online trading. They find it difficult to trade themselves, as a wrong entry made by
them, can bring them huge losses. Nevertheless to say that online trading has the bright
future as the percentage of the trade done through online trading is increasing day by day.
RECOMMENDATIONS
The suggestion to exchange authorities is to take steps to educate investors about their rights
and obligation , try to increase investors confidence. I suggest the exchange authorities to be
vigilant to curb wide fluctuations of prices on the exchanges in the prices ,not attracting to
the genuine investors to the greater extents towards the market .Try to explain them how
fraud will take place so that they will be alert and they can take necessary steps to avoid the
frauds.
Genuine investors are not at all interested in the speculative gain as their investment is based
on the future profits , therefore the authorities of exchange should be more vigilant in
imposing heavy
margin to curb the speculative of securities.
REFERENCES
Weston, Liz Pullman. "How to Choose the Right Brokerage for You." MSN
Money. http://moneycentral.msn.com/content/Investing/Startinvesting/P98893.asp