How to Buy Stocks in Pakistan: A Step-by-Step Guide

Investing in the stock market can offer a pathway to financial growth, and for those considering opportunities in South Asia, the Pakistan Stock Exchange (PSX) presents a platform. The PSX serves as the primary marketplace where shares of publicly listed companies are bought and sold, covering various sectors such as manufacturing, finance, and energy. Engaging with the stock market in Pakistan allows individuals to participate in the country’s economic landscape, potentially benefiting from capital appreciation and dividends.

Getting Started with Investing

The journey to investing in stocks in Pakistan begins with selecting a suitable stockbroker, as they serve as your intermediary to the market. When choosing a brokerage firm, it is beneficial to consider their regulatory compliance, ensuring they are licensed by the Securities and Exchange Commission of Pakistan (SECP). Evaluating their reputation, the range of services offered, and whether they provide online trading facilities are also important considerations. Many firms offer online account opening.

After selecting a brokerage firm, the next step involves opening a trading account. The documentation required includes a copy of your Computerized National Identity Card (CNIC), proof of income such as a salary slip or bank statement, and a recent bank statement. Additional requirements include a specimen signature, a utility bill for proof of address, and potentially your latest income tax return.

Some brokerage houses offer a simplified “Sahulat Account,” which requires only a copy of your CNIC to open. This account is designed for individual investors, including students and homemakers. While a Sahulat Account has a daily trading limit, it can be converted to a regular trading account later if an investor’s needs change.

In parallel with your trading account, you will need to open a Central Depository Company (CDC) account. The CDC functions as the central custodian for electronically held shares, ensuring secure storage and transfer of securities. You can open a CDC Investor Account directly with the CDC or a CDC Sub-Account through your chosen broker.

For opening a CDC account, documents include an attested copy of your CNIC, and for non-residents, attested copies of your passport. If you are an overseas Pakistani, opening a Roshan Digital Account with a Pakistani bank is often a prerequisite, which can then be linked to your brokerage and CDC accounts.

Once the necessary accounts are established, the final preparatory step involves funding your brokerage account. Common methods for depositing funds include bank transfers, online payments, or depositing a cheque. Funds are usually credited to your trading account.

Placing Stock Orders

With your trading and CDC accounts established and funded, you are ready to engage with the market by placing stock orders. Most brokerage firms offer online trading platforms, which provide access to real-time market data and allow investors to manage their portfolios. Investors can access these platforms via web browsers or dedicated mobile applications, which require a unique trading ID and password provided by the broker.

Navigating the trading platform generally involves searching for specific company stock symbols. Once the desired stock is identified, you can specify the number of shares you wish to buy. The platform will then allow you to choose an order type, which dictates how your purchase will be executed in the market.

Two common order types frequently used by individual investors are Market Orders and Limit Orders. A Market Order is an instruction to buy or sell a security immediately at the best available current market price. This order type prioritizes speed of execution over a specific price. Conversely, a Limit Order allows you to set a maximum price you are willing to pay for a stock or a minimum price you are willing to accept when selling. This order will only execute if the market price reaches or improves upon your specified limit price, offering more control over the transaction price but without guaranteeing execution.

After entering the details and selecting the order type, you will confirm the order. Once placed, the order’s status can be monitored through the trading platform, showing whether it is pending, partially executed, fully executed, or cancelled. The Pakistan stock market operates on a T+2 settlement cycle, meaning that transactions are settled two business days after the trade date, with shares transferred to your CDC account upon settlement.

Understanding Costs and Regulations

When engaging in stock trading in Pakistan, it is important to understand the associated costs and the regulatory framework that governs the market. Brokerage fees and commissions are charged by firms for executing trades on your behalf. These fees can vary among brokerage houses and are commonly structured as a percentage of the traded value or a fixed amount per share, often with a minimum charge. Some firms may offer different commission structures based on the trade value or share price.

Beyond brokerage fees, investors are subject to taxes on their trading activities. Capital Gains Tax (CGT) is applicable to profits earned from selling listed securities. For securities acquired on or after July 1, 2024, if an individual is on the Active Taxpayers’ List, a flat rate of 15% applies to capital gains. For non-filers, personal income tax rates apply, with a minimum of 15%.

Dividends received from stocks are also subject to Withholding Tax (WHT). The WHT rate on dividends differs based on the investor’s tax filer status. For individuals who are filers of Pakistan tax returns, the withholding tax rate on dividends is 12.5%, while for non-filers, it is 20%.

The stock market in Pakistan operates under the oversight of regulatory bodies established to ensure market integrity and investor protection. The Securities and Exchange Commission of Pakistan (SECP) is the primary regulator of the Pakistani securities market, tasked with supervising and regulating the corporate sector, capital markets, and various financial institutions. The SECP aims to promote fair dealing, prevent market manipulation, and ensure transparency.

The Pakistan Stock Exchange (PSX) also plays a direct role in regulating market operations, establishing rules and regulations for trading activities. Together, the SECP and PSX work to provide a secure and transparent trading environment, protecting investors’ interests and fostering a stable capital market.