1. Orders Trading on Stock Exchange

2. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed to open an account with a broker with a minimum balance of Rs. 25,000 (e.g., KASB Securities) There are 200 brokers on the KSE, 152 brokers on the LSE and 120 brokers on the ISE. After opening an account, an investor can trade by placing orders through phone, or internet (e.g., KASB accounts)

3. Orders Orders placed for purchase of shares are called bid order Orders placed for sale of shares are called offer orders At KSE, orders have a validity of one day

4. Two types of orders Orders refers to selling (offer) and buying (sell) of shares on stock exchange. Broadly classified: Two types of orders – Market Orders – Limit Orders – Limit order has further two types (stop orders): Stop Loss orders Stop Buy orders

5. Market Orders Market order is an order to buy or sell at the best price when the order reaches the trading floor. Market orders are executed immediately at the best current market price. If a market order is not completely fulfilled from the top limit order, it is fulfilled from the next limit order in the sequence The order is only valid for a day.

6. Limit Order An order to buy or sell at a specified (or better) price. The investor specify a particular price at which he/she is willing to sell or buy the shares. The bid and offer orders must match each other for execution of a transaction. Limit orders can not fulfil above or below the price at which they are placed. Pricing matching is necessary not the quantity. First come, first serve rule applies

7. Example of Limit Order 1. A bid order of 1000 shares of PTCL is placed with Rs.50 a share 2. Another investor bids 200 shares of PTCL at Rs. 50.60 S. NoBid QuantityBid PriceOffer QuantityOffer Price 1100050.00-- S. NoBid QuantityBid PriceOffer QuantityOffer Price 1100050.00-- 220050.60

8. 3. An offer order 400 shares of PTCL is place at Rs. 52 (The transaction is not executed as the bid and offer price do not match each other) 4. Another investor places a bid order of 300 shares at Rs. 50.60 is placed S. NoBid QuantityBid PriceS. N0Offer QuantityOffer Price 1100050.00140052 220050.60 S. NoBid QuantityBid PriceS. N0 Offer Quantity Offer Price 1100050.00140052 220050.60 330050.60

9. 5. Someone offers 200 shares of PTCL at Rs.50.60 a share (WHICH SHARES - S.NO 2 or S. NO 3???) 6. An investor is willing to sell 400 of PTCL shares at Rs. 50.60 S. NoBid Quantity Bid PriceS. N0 Offer Quantity Offer Price 1100050.00140052 230050.60 S. NoBid Quantity Bid PriceS. N0 Offer Quantity Offer Price 1100050.00140052 210050.60

10. 7. An offer order of 600 shares of PTCL at market order is placed 8. A bid order of 500 shares of PTCL is placed at Rs. 50.50 per share. S. NoBid Quantity Bid PriceS. N0 Offer Quantity Offer Price 140050.00140052 210050.60 S. NoBid Quantity Bid PriceS. N0 Offer Quantity Offer Price 140050.00140052 250050.50210050.60

11. 9. A offer order of 700 shares of PTCL is placed at market price. 10. A bid order to buy 300 shares of PTCL at market is placed S. NoBid Quantity Bid PriceS. N0 Offer Quantity Offer Price 120050.00140052 210050.60 S. NoBid Quantity Bid PriceS. N0 Offer Quantity Offer Price 120050.50120052

12. Limit Order Bid orders with highest bid price are placed at the top Offer orders with the lowest offer prices are placed at the top Orders with similar prices are sorted on the basis of first come first serve

13. Limit Orders (Stop Orders) Stop-Loss Order: – The share has to be sold if its price falls bellow specific level – It is used to avoid unexpected losses – Also useful in very volatile (uncertain) markets – For example, on the KSE, there is a cap of 5% fluctuation above and below the beginning share price on a day. Now, an investor can place stop-loss order at 2% and avoid the 3% loss, if anything abnormal happens with the stock – For example, a share price of Rs. 100 can be dropped down to Rs. 95; so the investor can stop at the order at Rs. 98 to avoid the Rs. 3 further fall in the prices.

14. Limit Orders (Stop Orders) Stop-Buy Orders: – Specifies the price that a share should be bought when price of a security rises above a stipulated limit – It is usually used with short-sell to limit possible losses from short position – For example, on the KSE, a share of Rs. 100 may increase upto Rs. 105; in the case, an investor may place a stop-buy order of Rs. 103 in order to avoid Rs. 2 further increase.