One of the countries along the Indus River, sharing its border with developing economies like India and China, Pakistan has always been in the news from the time of partition. The country faced many ups and downs. From IMF declaring KSI (Karachi Stock Index) as the world’s best index to political instabilities causing a downfall in the economy. The semi-industrialized economy and measures taken by the Pakistan government to liberalize foreign investment, Pakistan’s financial market found its way back to the progress and is growing and creating a strong and steady economy.
Pakistan Financial Market
The two main bodies controlling the financial market of Pakistan are the State bank of Pakistan (Central Bank), and the Securities and Exchange Commission of Pakistan (SECP). While the banking activities are regulated by the Central Bank, SECP is responsible for the rest of the market that includes stocks, commodities, forex, etc.
Top 5 Brokerage Firms in Pakistan
The top 5 Brokerage Firms in Pakistan are Instaforex, Hotforex, Avatrade, Fxpro and XM. The best broker in Pakistan is Instaforex because this broker is one of the biggest Asian brokers and have very often interesting promotions for traders (live and demo competitions, free car competition, start up bonus from $1000 etc.). Next one is Hotforex, because excellent support, huge number of clients, fast deposit and withdrawal.
Pakistan Stock Market
On 11th January 2016, the Pakistan Stock Exchange (PSX) was declared by merging the three large stock exchanges of Pakistan namely the Karachi Stock Exchange (KSE), Lahore Stock Exchange, and Islamabad Stock Exchange (ISE).
Before PSX, Karachi Stock was the largest stock exchange in Pakistan. Being one of the oldest stock exchanges in South Asia, KSE was declared one of the top 10 stock exchanges in the world. In 2020, PSX was declared Asia’s best stock exchange in terms of performance and on the fourth position in the world. This was possible because of the stock index of Pakistan Stock Exchange, KSE 100, which made it possible by giving returns on investment equal to 38.4% in dollars, inviting more foreign investment for steady market growth.
The KSE 100 works as a benchmark that analysis and tracks the performance of the large listed companies in the PSX by creating a chart of their stock price index. It focuses on all the companies from different parts of Pakistan’s economy.
Pakistan stock exchange has both foreign and local and institutional investors with over 400 brokerage houses. Traders can look for the top 10 brokerage houses in Pakistan and select the broker that goes in line with their trading plan.
How to become a broker in Pakistan?
Company that is trying to become a broker in Pakistan must be a registered company of Pakistan/International Origin OR their authorized business partner with a registered office in Karachi, Pakistan. Relevant Experience Vendor must have at least 5 Years of experience in the area of application development/support in the Financial Industry.
Cryptocurrency Trading in Pakistan
In 2018, the State Bank of Pakistan declared that any type of virtual currency trading or holding, like bitcoin or cryptocurrency, is banned in Pakistan. And that if anyone found to be trading in such securities will not be provided any help in case of any dispute. The government is not responsible for and does not support such activities. The step was taken to protect the economy from issues like terrorist financing and money laundering.
Forex Trading in Pakistan
Unlike cryptocurrency, Forex trading is legal for the residents of Pakistan. Although Pakistan Stock Exchange has stated that the brokers need to be regulated by the SECP (Securities and Exchange Commission of Pakistan). Many local brokers are not following this rule. There are many cases of fraud and misconduct by domestic brokers. So, most traders either look for the regulated domestic brokers or go for international forex brokerage companies to enter the forex market of Pakistan. It is legal for foreign brokers to trade in Pakistan.
The regulatory body states that Forex traders are not exempt from paying taxes. They can either file an income tax return (if they are residents of the country) or give a certain percentage to the government. Although, in the initial stages of forex trading in Pakistan, forex traders were exempt from income tax making it entirely tax-free. The government introduced this law later to prevent any unnecessary outflow of the capital from the country.
Commodity Trading in Pakistan
Commodity trading in Pakistan is centralized and regulated by the Pakistan Mercantile Exchange. It is the only company that provides a platform for commodity future trading in Pakistan. The Exchange provides a technologically advanced web platform for commodity trading under the regulation of the Securities and Exchange Commission of Pakistan.
When the exchange was first commenced in 2007, it had only gold as a listed commodity. In further years, the trade grew and now the Pakistan Mercantile Exchange trades in crude oil, gold, and silver as their main commodities.
The Checklist For Pakistan Brokers
There are certain factors and aspects that need careful consideration before selecting a broker. You can refer to our checklist given below to find the right broker on Pakistan:
- Cost, fees, and charges
Trading does not mean just investing the capital available with a trader in the stock market. It is a whole process before the investment decision is taken and the process comes with its own cost. There are fees and charges that need to be paid apart from the investment capital. These charges include broker’s fees, trading commission, the minimum amount for opening a trading account, and many more. It is advised to the trader to do research of these charges for the market or simply ask the broker.
- International recognition
By international recognition, we mean the position of each broker in the international financial market. Each broker has its own sources and experience which provides him with a stance in the foreign markets. Brokers with good sources and a better position can help the trader to gain access to the trading opportunities that other traders might not be able to provide.
- Trading experience
An experienced broker may come with a higher cost, as compared to the inexperienced brokers, but going for the experienced one is worth your investment. The brokers with considerable experience of trading in the market can provide you all the necessary information about the trading techniques, trends, types of accounts and securities available, the best trading platform, etc.
- Customer support
Customer support refers to the assistance that the broker is willing to extend to the trader (the customer). How quick is the broker to keep up with your trading demands? Is he able to answer all your queries? Will he be able to help you solve disputes in case any arises? How he has been with other customers? These are some of the questions that help the trader understand the customer support level of the broker.
- Security or securities
Sometimes a trader may wish to trade in more than one type of security. For that he/she must make sure what type of securities the trader is capable to trade in or maybe he is versed with only one type of security trading. It is better to choose a broker who can trade in all the security options the trader wants to trade in rather than choosing a different broker for every different security.
The presence of a regulatory body works as a stamp of security. Make sure your Pakistani broker is regulated under the SECP for the safeguard of your funds. You cannot protect your investment from the strong forces of the market but you can always protect them from being misused by the broker for his own personal needs, which is unlawful.
The financial market of Pakistan has a lot to offer to the traders. As one of the oldest exchanges in Asia, there is a sense of steadiness here. But no matter how strong the market is, there is always a risk of dynamic market forces that a trader and the broker must look out for. As a top-ranked entity in the list of the world’s stock exchanges and the liberalized laws for foreign investors, it has attracted a number of foreign traders providing growth opportunities and favorable returns to the investments.
However, as all the local brokers are not regulated under the Securities and Exchange Commission of Pakistan there is always a risk of misuse of trader’s capital. So, the trader must make sure that the broker he/she is choosing is regulated.