What is a stock?
Stock represents a proportional share of ownership in a company. When an investor finances any company through the stock market using his savings, he gets shares of the company. These shares are financial securities or stock of the company. The stock of the company is secured by a claim on the assets of the company and the shareholder also shares the profit and growth of the company.

How can I buy a stock?
The most common way to buy stocks is to use a brokerage house. They are of two types: full-service brokers and discount brokers to execute your trades. When you use a brokerage, you can have a cash account or a margin account meaning you can borrow money to buy stocks with them. The other way is through Direct Investment. Those are plans sponsored by individual companies that allow general public to purchase stock directly from a company, which issues an IPO. The direct purchase is usually consummated through nominated banks.

How the stocks are traded?
In the listed sock exchanges, brokerage firms contribute individuals known as "specialists" who are responsible for all of the trading in a specific stock. With the help of technology, the specialist quickly matches buyers with sellers. Stock exchanges sometimes work as” an auction market,” where the specialist can see who has blocks of stock to buy or sell at various prices and links them up. In return for this service, the specialist charges the buyer an extra fee, depending on the price of the stock. The specialist counts volume, or the number of shares that trade on a given day. The Karachi Stock Exchange and New York Stock Exchange both examples of listed exchanges.

What is the common stock of a company?
Common stock is more than just a piece of paper; it represents a proportional share of ownership in a company - a stake in a real business. It is the most common and easily available form of stock. Every investor can easily buy the common stock of a company. There are no restrictions on the purchase of these shares of the company.

How does the shareholder benefit from the growth of the company?
Shareholders own a part of the assets of the company and part of the stream of cash those assets generate. As the company acquires more assets and the stream of cash it generates gets larger, the value of the business increases. This increase in the value of the business increases the value of the stock in that business. As a result the wealth of the shareholders of the company increases.

What is stock shorting?
When you expect that the stock price of a security is going to decrease in future, you buy it for short selling. The purpose is to make money and to take advantage of its decreasing price.

First you borrow shares from your broker to short them. When you receive the borrowed shares, you immediately sell them and keep the cash, promising to return the shares at some future time. The plan is to eventually repurchase the shares at a lower price and return them, keeping the difference yourself. But, if the stock's price rises, you might have to buy back the shares at the higher price and thus lose money.

Can I lose more than my invested amount while shorting a stock?
The biggest danger of shorting stocks is that stock price of the shorted stock can keep rising and rising, costing a short-seller more than all the money put at risk. The most money that can be lost while stock shorting can be more than all the money used for the purchase of shorted stocks.

What does a broker do?

• Broker works as a link between you and the stock exchange.
• A stockbroker is a salesperson.
• He works for a stock brokerage house.
• The broker's job is to carry out your transactions.

What is online trading?
The online trading systems allow individuals to participate in the stock markets at a greater speed using online investment opportunities. They do not have to go to stock exchanges and brokerage houses to trade their shares. Many stock exchanges and brokerage houses are offering their services through Internet. Now investor can open their accounts through Internet and can make transactions through Internet.

Which is the simplest way to place an order?
When you want to buy or sell shares you place a buy or sell order with your broker. You just tell your broker how many shares you want to purchase or sell and he will do it for you. But you must have an account with your broker to conduct this transaction.

How professionals value a stock?
Most common way to value the stock of a company is to get and analyze the fundamental and financial information of the company, which includes:

• Type of business, its products and services.
• Revenues.
• Cash flows.
• Equity.
• Dividend Yield to figure out the worth of the company.
• Ratio analysis is done to evaluate the financial health of the company.

What does bullish or bearish trend mean?
The market is considered to be bullish if it is going up, bearish if it is going down, and volatile if it is going up and down in the form of a series.

What are the common mistakes, which an investor can make?

• Not following an investment objective when you build a portfolio.
• Buying too many mutual funds.
• Not researching stock before buying it.
• Taking profits early.
• Not cutting your losses.

Can I own part of a business without joining their day-to-day operations?
You can own a part of a company by buying its shares through the stock market. These shares are financial securities or stock of the company. They have secured claim on the assets of the company. The shareholder also shares the profit, loss and growth of the company without participating in its day-to-day business.

Should I invest in a security about which I do not know?
It is not a good idea to invest in a stock, about which you don’t know. There were horror stories of people who had lost fortunes by investing blindly in different securities. They had no idea of the risks they were taking. Most of the complaints about fraudulent stocks are a result of not understanding the risks and mechanisms of the securities.

If someone tells me “Buy this stock immediately otherwise you’ll lose a great investment opportunity” what should I do?
It is possible that someone offers you the opportunity of a lifetime; it is more likely that it is some sort of a dodge. Even if it is justifiable, the caller cannot know your financial position, goals, risk tolerance, or any other parameters, which should be considered when selecting investments. Ask for material required to check the validity of the option.

What should I do if a security offers me above average returns?
If it sounds too good to be true, it probably is not true and realistic because in the investment world there is no such thing as a free lunch. Every investment opportunity competes with every other investment opportunity. If one seems wildly better than the others, there are probably hidden risks, which you do not know.

How can I evaluate a company before investing in it?
Compare the multiple of earnings of the company with other companies in the industry to evaluate the current and future aspects of the company. Base this comparison on forward earnings instead of historical earnings to make it more reasonable and beneficial. Analyze the following aspects of the company for evaluation:

• Does the company have good products, good management, and good future prospects?
• Do they have patents?
• How intense is their competition?
• Do they have long-term contracts established?
• Is their brand name recognized?
• Does the company have competent people running it?
• How their compensation is structured?

What is target price for a stock?
A target price for a stock is a figure published by a securities industry person, usually an analyst. The idea is that the target price is a guess about the stock price. Target prices usually are associated with a date by which the stock is expected to hit the target.

What is an Initial Public offer?
When a company whose stock is not publicly traded offers some stock to the general public for the first time that is called IPO. It usually asks an "underwriter" who is mostly an investment bank to help it do this work. The underwriter agrees to pay the issuer a certain price for under subscribed shares, and charges undertaking commission to the issuer. The underwriter is usually free to sell these shares to any of its client or in the market through stock exchange.

What is the risk of an investment?
Risk measures your willingness to accept an investment, which is expected to decrease in value in the near term, even while you know the chances that it will increase over the long term. The higher the risk in an investment, the more likely it is to drop in the short term as well as to rise in the long term.

How can I know the sensitivity of a stock’s returns?
Sensitivity or variability of returns of a stock can be judged by the risk of the security. If an asset jumps up and down a lot, it is considered to be riskier than a stable asset. When your returns are more variable, you have more of a chance of losing money. You should adjust your returns for risk according to the beta measure of your stock. If your stocks were more volatile than average, your risk-adjusted returns must be higher. For a volatile and risky stock returns must be high to compensate that risk.