Tag: Broker

Many blame NRB’s 12cr cap (now 15) and interest rate. I think reason for the end of bull was not only cap but also interest rate which went up to 14-16%. Also, the risk weight given to margin lending.

However, many seems to ignore the leverage provided by the broker at that time. Back then, many were provided with leverage of 4 time. if you load collateral of 1Lakh, you get collateral of 4Lakh. Many however got 4time leverage simply based on cheque. If I hand over 1Lakh cheque to broker, my collateral would be 4Lakh. And cheque wasn’t even cashed out.

You are supposed to settle the transaction within certain time (T1/T2). However, frequent traders were in exceptions. You wold buy-sell and settle way later. I know many who took months to settle the transaction. This was like printing money and using money with 0 interest.

After NRB introduced the cap, there was panic in market and brokers were asking client to settle. They stopped giving 4x leverage. Leverage provided was 1:1, that too once cash is loaded. As per one of the broker, such leverage or say udharo ma karobar still happens but is limited to very few. The defensive stance was taken because banks were not easily giving loan against stock.

This is what I believe started the bearish run. If broker is to provide similar leverage, market may go up eventually, regardless of interest rate, nrb cap, or even economic condition (srilanka stock market for example).

View on r/NepalStock by captainright1