How to Trade

1. I bought stocks, but every day I see all other stocks going up except mine. Why am I so unlucky?

You are 'probably' not unlucky. This is a common dilemma that most investors go through. Each day at least one stock starts a rally and makes a significant gain in its price. By nature we get attracted to that stock and tend to think 'why not I bought that' or 'if I had bought that stock'.

But in reality stock rallies last for only a few days, all the other times the stock remains dull and stagnant. Unfortunately for the investor, when they continue to see different stocks rallying each day for about couple of weeks, they get the feeling that everything else moves except the stocks in the investor's portfolio.

2. What do ‘overvalued’ and ‘undervalued’ mean?

You can calculate a value (intrinsic value) for the shares of a company based on a number of factors such as earnings, dividends and cash flows. This value could differ from the market price of a share because market price is determined from demand and supply factors which may not reflect the above factors. Therefore, there could be a difference between the market price of a share and the intrinsic value of a share.

If the market price is less than the intrinsic value then the share is undervalued. The market has not identified the true worth of the share. If the market price is higher than the intrinsic value then the share is overvalued. It is advisable to buy shares that are undervalued because its price may reach its true value in the long run.

3. What is a candlestick chart? How do I interpret it?

Candlestick is a chart that captures price movements of a stock for a particular period and shows the Opening, High, Low and Closing price of a particular stock at a particular point in time. These charts are predominantly used in technical analysis to predict future prices or direction of future prices.

Candle Chart

4. What are Day Orders?

A Day Order will be cancelled at the end of the trading day. That is how generally orders will be placed. But if you want you can use GTC or GTD orders.

5. How can I predict prices from a stock chart?

There are various techniques you can use to predict likely stock prices in the future. You can check the 'Show me the Science ' section under the Education Tab of our site where we introduce one new technique every day. But you should remember that all formations, patterns and charts fail at some point and it should be used in conjunction with other methods in forming a buy or sell decision.

6. I buy stocks, but I can’t make up my mind to sell.

Most of us buy stocks for only one reason and one reason only, that is to SELL one day at a higher price and make a profit. But it is true that most of the time investors tend to get hesitant when trying to sell, thinking that that stock will reach higher so that they can sell at an even higher price. But in reality after a rally most stock prices will take a downward trend for some time.

It's important for you to understand that stock rallies don't happen every day and most of the time, they last for only 2-3 days. This is a common scenario in any market worldwide. Therefore the best way that you can make up your mind to sell is to determine the price at which you sell at the point of buying. You may decide, that I will exit when I get 10% return, or even 5%, 35% or even 150%. It's very crucial that you be realistic in this figure. You may consult advisor and experts when arriving at this figure.

Once the stock price reaches the price you expected its best that you consult your advisor and experts again and make you exit (sell) accordingly.

Most of the time too much greed will only end up in sorrow! EXIT when the time is right. Once you made the sale, that stock is gone, it would be best you take that stock out of your radar (until one day that the same stock becomes attractive again). Stocks are there for you to make money and exit. Don't get emotionally attached to them.

7. I have made few mistakes and I have lost big! Fell like quitting! Any advice?

It's good that you used the word 'mistakes', that mean you know you did something wrong. It is very important that you learn from your mistakes and not to do them again. If you continue to make the same mistakes over and over again, then there is nobody to blame but you. So even though you lost consider that your loss is worth the lesson you have learnt.

Stock trading is all about learning and mastering the techniques. Most probably you would never find an investor who has not made a loss in their lifetime of trading. Probably they have lost many times, but if you happen to read about any great investor, you will notice that they all have lost, but more importantly they have learnt from their mistakes.

It's your decision whether to quit or not, but keep in mind that you can't ride on your luck every day. Unless you select your stocks with an underlying reason, you are meant to make loses at some point, and surely your loses will be big when that day comes.

1. What do I have to do to trade stocks?

You need to have a BO account. The process is very easy, just call 16325 or any of the branches and collect the registration form. Fill the form and submit with a copy of the national identity card, photograph of both the account holder and the nominee, bank statements that proves your address to the broker. Generally within 2-3 working days your BO account will be created.

2. I'm not rich! How much money is needed to start trading?

You may even start with any amount depending on the stock that you select to buy. Some stocks trade at very low prices. e.g. around BDT 10. Assuming that you are planning to buy 100 shares of such a stock then your total cost would be about 1000 BDT. But you need to keep in mind that for every transaction, a commission of 0.40 pence is charged.

3. Need some help with filling the forms?

  • To fill the BO account forms correctly, you should take help from an executive of any branches of LBSL. Most information requested in these forms are very straight forward, nevertheless you may wonder what the below really means
  • Duly completed BO account Forms
  • A copy of the NIC;
  • If you don't have your NIC a copy of the Passport should be provided. If you don't have either the NIC or a Passport then a copy of the Driving License should be provided (with an affidavit affirming the NIC number and that both NIC and Passport are not available);
  • Bank statements of the account holder.

4. How do I know which stock to buy?

Take advise from the brokerage house’s research department or take help from technical charts provided in the Lanka Bangla Financial portal. www.lankabd.com

5. How fast can I take my money back?

If you sell your stocks today your account will be credited in 3 working days from today. Therefore you can take the money back within 3 working days of any day that you select to exit your stocks. Nevertheless if you suddenly decide to exit your stocks, you might have to sell the stocks at the price prevailing at the market as at that given date. This might probably not be the desired price at which you wanted to sell the stocks.

6. Is my money safe in the stock market?

First of all you are only buying shares of a company or companies. Stock exchange and the brokerages are only the parties that facilitate these transactions. Having shares of a company is almost like you own a small % of that company.

Performance of the stock depends on how successful or unsuccessful the company is. If the company performance or the information about the company is favourable, most probably the share prices may go up, if the information is unfavourable, stock prices may affect adversely. Therefore the safety of your money depends almost entirely on how well the company performs and information circulating about the company.

7. How can I lose money in stock market?

Risks are common to any investment. One of the main risks of share trading would be the possible drop in value of shares you've bought. But if you buy shares after careful consideration of the performance of the company then it is unlikely that you will lose. However, Economic, Political, Social, Technology and various other conditions could also affect the share prices.

One way that you could possibly minimize your risk is by investing in different companies in different sectors. As it is commonly said 'Don't put all your eggs in one basket'. But always remember 'Never invest more than you can afford to lose'.

8. I want to start trading stocks, what advice would you like to give me?

If the stock trading is new to you, it's very important that you gather as much knowledge about this domain as possible. We would recommend for you to observe the market, more specifically few selected stocks for few days. Consider that you have bought them with paper money (not real money) now keep an eye on to see how your money is progressing. This will give you a good feel of how prices fluctuate with you having to invest your actual money. Practice makes it perfect!

Further read as much as you can. The more you read about the information related to stock markets and the Chittagong Stock Exchange the more it gears you up for the real thing. Especially with the power of the internet, no information is far away from any person. Knowledge is power!

9. Can anyone open a BO account?

Of course, if you are above 18 years of age and have your National Identity Card you can open a BO account.

10. Is it a must to open a BO account if I am to buy shares?

Yes.

Further, if you are subscribing in a new company through an IPO you will have to open a BO account because share certificates are not issued any more.

11. Why should I invest in the share market and not in a savings account or a fixed deposit? What are the additional benefits?

If you invest your savings in a bank deposit you are sure to get an interest at the end of each month, (unless otherwise the bank goes bankrupt!!!) However, the return you get is fixed. If you invest in the share market with the correct knowledge and a bit of caution, your returns could best be explained as unlimited. But you should also keep in mind that the share prices always fluctuate and there is a risk that you will make a loss. You should only invest in the stock market if you can take that risk.

12. How do I pay for the shares I buy?

You have to deposit a sum that is equivalent to the value of the shares you buy plus the commission, to the bank account of your broker or pay to any of the branches of the company. But it should be noted that branches would not accept cash deposits above funds amounting to BDT 500000.

13. Can I trade on my own without the broker?

Yes you can. TradeXpress and DSE online trade.

14. My English is not that good. Is it a problem?

Not at all!

1. What information should I give my advisor when placing buy/sell orders?

  • Name of the company
  • Number of shares
  • The price

2. Can I quote any price I want?

You can quote any price you want in multiples of 10 cents. But first you should check the current market price and quote a reasonable price to ensure that your trade will be executed and also to ensure you don't lose out by quoting a lower price for a sale.

3. Why do share prices fluctuate?

Share market is similar to any other market. The prices depend on the demand and supply of the shares. For example, if there are more people wanting to buy a stock than to sell it, the price will be driven up because those shares are rarer and people will pay a higher price for them. On the other hand, if there are a lot of shares for sale and no one is interested in buying them, the price will quickly fall.

Apart from this, economic and political conditions will also have an effect on the share prices.

4. What is DSEX? How do we whether the market is 'Up' or 'Down'?

DSEX stands for DSE broad Index. This measures the price movements of all the shares of companies listed on the DSE. If this index is higher on a particular day as at end of trading than the previous day's close the market is said to have improved and vice versa.

5. What's the difference between limit orders and market orders?

Limit orders are the most common orders investors place. It is an order in which the maximum buying price and the minimum selling price is specified.

Market orders are bit complex than limit orders. These are orders to buy or sell a security at the best price or prices prevailing in the market at that point in time. A price is not specified in this order and the trade will be executed at the best price. But the system will automatically calculate a protection price each time a market order is placed to prevent market orders being executed at extreme prices.

6. Once I place an order is it final? Can I amend the price or the quantity of my order?

Yes, you can amend the price and the quantity of your order prior to it being executed. If it is partially executed the price and quantity of the un-executed portion of the order can be amended. You can also cancel any order prior to being executed and if partially executed any un-executed portion can be cancelled.

7. How do I keep a track of the securities I hold?

If you have an online trading account that will show the number of securities you hold and the value at a particular point in time. In addition to this you can log in to LBSL I broker services and see your statements any time you want. Moreover, portfolio statements are mailed every day after trade hour to all the clients of LBSL.

8. What are dividends?

Dividends are a share of a company's profit given out to shareholders of the company in different ways. It could either be in cash or in shares of the company. If it is paid to shareholders in cash it's called a cash dividend, which is the most common way to pay a dividend. If dividends are paid in shares it's called a stock or scrip dividend.

9. What do I have to do to earn dividend?

You just have to hold the share on the day the effective day for a dividend. But there is no guarantee that a Company will pay a dividend. It all depends on the company's earnings and future strategies.

10. What does X Dividend mean?

X Dividend date means the market day immediately following the date on which the shareholders pass the resolution relating to the dividend distribution. If you buy the share on the X Dividend date, you will not be entitled for the dividend. The seller will have the right for the dividend.

11. How do I know whether the company I have invested in is performing well?

You will be entitled to get an Annual Report (which sets out the financial position and performance of the company) once a year and quarterly reports or half yearly reports will be published on the portaI www.lankabd.com. It is very important that you go through these data to see whether the Company is performing well. But unfortunately past performance only will not guarantee a good return in future.

12. If a company does not pay dividends does it mean that the company is not performing well?

By all means NO! You should always look at the income statement of the Company. The Company could be making profits but does not want to pay dividends because it has attractive ventures to invest in, which could be more advantageous in the long run. But if you expect a short term return then you should think twice before investing in such a company.

13. I don't understand the financial statements. How do I analyse the performance of a company?

As an alternative you can use the financial ratios which are commonly used to interpret the wealth of information given in financial statements. This is a fairly easier way to find out whether a company is doing well or not. You can also use the technical analysis which makes use of charts and patterns (among other things) to predict the price movements of shares. You will also have to do some basic research about the company, including but not limited to the quality of its management, the cash flow position of the company, competitive position in the industry and whether its shareholders friendly.

14. Why do I always hear about Bulls and Bears in the stock markets? What did these animals do?

Bull signifies market going up. Bear signifies market going down. So if you happen to hear "!today market had a bull run!" or "! banking sector reacted bullish to new tax reforms.. " this means to say it went up. Similarly any reference to bear meaning it went down.

1. I hear a lot about IPOs these days? What is it actually?

Initial Public Offer (IPO) is the method by which a company first enters the share market. The company invites the general public to invest in the shares of the company using a document called a Prospectus. This prospectus has the information about the issue (no. of shares, price per share, how to apply, etc), information about the history of the company, financials, future strategies and so on.

2. What is prospectus? From where can I get a prospectus?

Prospectus gives out the details of the company, details about the shares to be issued, industry information, procedure in applying for shares and so on. You can get the Prospectus from your broker and also from the respective company. You can also get prospectus from the financial portal.

3. I never get allotted the total number of shares I apply for in an IPO. Why is this?

As a result of the increased investor confidence in the share market, companies going for IPOs get oversubscribed. That is, the company gets applications for more than the number of shares they are issuing. As such the companies have to decide on a ratio or a method to allot shares to all the people who invest in a fair manner. Because of this you will not get the total number of share you apply for. The basis of allotment will be published by the company on the DSE and CSE website once it is decided upon.

4. Can I apply for shares jointly with another person?

Yes, you can. You can apply jointly with a maximum of two (2) other applicants (your spouse or children above 18 years of age).

1. What is a 'rights issue'?

A company issuing shares in a specific proportion to the existing shareholders of the Company. If you hold shares on the date of the EGM you will be entitled to buy shares at a lower price than the prevailing market price of the company's share. But if you don't want to exercise your rights you can also trade your rights in the market as it goes as a separate security (denoted by the letter 'R'). All the information regarding the issue will be given out to shareholders by way of a Circular.

2. What are the important dates for a rights issue?

  • EGM date
  • The date on which the shareholders pass the requisite resolutions for the rights issue.
  • XR date
  • The immediate market day following the date of the EGM.
  • Date of dispatch of provisional letter of allotment
  • If you hold shares as at end of trading on the EGM date you will get a provisional letter of allotment giving out your entitlement for the rights. Once you get this letter you can decide either to exercise your rights or to trade your rights.
  • Last date of acceptance and payment
  • The date by when you should complete payment for the rights you are going to exercise.
  • Period of renunciation
  • From the date the rights start trading up to the renunciation date you can trade on your rights.

3. What is Capitalization of reserves?

This is more commonly known as a bonus issue. This is a situation in which you are given shares free of charge in a specific proportion to their current holding. The required funds are taken from the reserves of the Company.

4. What should I do to get shares in a capitalization of reserves?

If you are a shareholder entitled for the capitalization of reserves you will get a circular setting out all the details. If the company's Articles of Association require shareholder approval to be obtained for the capitalization, the company will hold an Extraordinary General Meeting to obtain same (Remember, to be entitled for the capitalization you should hold shares of that particular company as at end of trading on the EGM date).

If the shareholders approve the particular resolutions, the company is required to complete the direct uploads within 5 market days from and excluding the date of the EGM and submit a Declaration to the CSE on the immediately following market day as per CSE Rules. The shares will be available in your account on the following market day.