Margin Trading Expands as More Brokers Prepare to Inject Credit into Nepal’s Stock Market

Kathmandu: Nepal’s stock market is set to see a wider rollout of margin trading facilities as more brokerage companies move toward providing credit-based share purchasing services to investors. The expansion comes at a time when market participants are seeking stronger trading activity and additional liquidity in the secondary market.

Six more brokerage companies are in the final stage of receiving approval from the Nepal Stock Exchange (NEPSE) to operate margin trading. Capital Max Securities, Share Pro Securities, Kalash Stock Market, Machhapuchhre Securities, SPS Securities, and Sajilo Broker have already obtained necessary approval from Nepal Rastra Bank, with only the final clearance from NEPSE remaining.

Once these companies receive approval, the number of brokers offering margin facilities will increase further. Currently, 31 out of 92 brokerage companies have obtained permission to provide margin trading services, although only a limited number have started full-scale operations.

The growing interest among brokers indicates a shift in the business model of brokerage firms. Traditionally, most brokers in Nepal have depended heavily on transaction commissions as their primary source of income. However, margin lending provides an additional revenue stream through interest income and could help brokers diversify their earnings.

Under margin trading arrangements, investors do not need to provide the entire amount required to purchase shares. Instead, they invest a portion of the amount themselves while the remaining amount is provided through loans arranged by brokers, often with support from banks and financial institutions.

For example, in a Rs 100 share purchase, an investor may contribute a certain percentage while the remaining amount can be financed through borrowing. This allows investors to increase their market exposure with limited initial capital. However, it also increases risk because losses can rise when share prices move downward.

To support margin lending, several brokerage firms are preparing to raise funds from banks. Some companies have started credit rating procedures to qualify for larger borrowing facilities. Capital Max Securities is conducting a credit rating process for a proposed loan of Rs 500 million, while other brokers are preparing for financing arrangements worth billions of rupees.

Nasa Securities has already moved ahead in margin lending operations, providing around Rs 1 billion in loans to investors. The company plans to expand its margin loan portfolio to around Rs 3 billion, indicating growing confidence among brokers about demand for leveraged trading facilities.

The expansion of margin trading is expected to increase market participation by providing investors with additional purchasing power. In a market where liquidity and turnover have often remained concerns, easier access to credit could support trading volume and improve market activity.

However, the impact of margin trading will depend on market conditions and investor behaviour. During a rising market, leverage can increase investment capacity and boost turnover, but during a declining market, it can amplify losses and create repayment pressure for investors.

Market analysts believe that margin trading could become more effective if combined with broader market reforms, including the introduction of short selling, intraday trading facilities, and easier participation of non-resident Nepali investors in the secondary market.

The increasing involvement of brokers in margin lending marks a new phase for Nepal’s capital market. While the facility can bring more liquidity and investment opportunities, regulators and market participants will need to maintain strong risk management practices to prevent excessive speculation and protect investors.