How To's

How the Stock Market Works

The stock market is a place where companies list themselves to make their shares available to a broad range of investors to purchase these shares. You, as an investor, have the option to choose from multiple stocks of different companies to buy in order to build your investment portfolio. The share prices of the shares listed on the Stock Exchange fluctuate according to the buy & sell transactions taking place.


By purchasing shares of the selected companies, you build your portfolio of stock investments.

This portfolio is formed and selected on the basis of:

  • Company.
  • Sector.
  • Returns you are expecting.
  • Risk capacity. (How much can you invest in spite of market volatility?)
  • Risk tolerance. (How much market downturn and volatility can you sustain?)
  • Payouts (dividends or bonus shares).
  • Any other considerations you may have according to your stock investment preferences. By purchasing the shares of a company, you become a shareholder of that company and are entitled to dividends and other payouts such as bonus or right shares issued by the said company, along with the advantage you can have of capital gain from increase in price of the shares.

If you have decided to invest in the Stock Market, then it is a decision well worth taking. Consider this that Pakistan Stock Exchange has performed better over the last several years, above and beyond other investment vehicles available in the country. Returns earned from the Stock Exchange as compared to other asset classes over the last ten years, Jan 2009 to Dec 2018,

is illustrated below:

KSE 100 Index stocks provided compounded annual returns of 15.13%* over the last 15 years Dec 2003 to Dec 2018. These figures compare fairly well with other avenues of investment in Pakistan. Given the fact that the Pakistan Stock Exchange has given good returns historically, it is safe to say that investment in stocks in Pakistan Stock Exchange may well be worthwhile for the long run.


It is always a good idea to invest your money where you get competitive returns. The stock market is one such avenue where there is good upside potential, historically, and where the returns have been higher than those from other investment avenues. Investing for the long term is a better option than investing for the short term in the stock market. It will not only allow you to compound your earnings but will also enable you to earn dividends which can be re-invested in the market, thereby increasing your earnings. So you must focus on It is always a good idea to invest your compounding your earnings, reinvesting your dividends and achieving capital gain.

* Source: Bloomberg