Wednesday, February 8, 2023

How to buy shares in the secondary market?

The stock market has 2 markets:

  1. Primary market.
  2. Secondary market.

The primary market is to buy shares by applying. To apply for the purchase of an Initial public offering (IPO) issued by a company to the public is entering the primary market. Shares can be traded by entering the secondary market directly.

Investors should go to a securities broker to trade shares in the secondary market. A stockbroker is a company that is licensed by the Securities Board of Nepal to buy and sell shares as ordered by an investor.

There are currently 50 broker companies and their 48 branches are providing share buying and selling services in Nepal.

You can contact the broker company directly to buy shares from the secondary market. You can buy the shares of the company listed on the Nepal Stock Exchange by paying the market price or the price that the seller wants to sell.

Due to a large number of applicants in the primary market, the chances of getting shares are not 100%. Recently, only a small number of applicants get IPOs issued in small quantities. The risk is higher in the secondary market, but it is easier to buy the shares you want.

In order to buy shares from the secondary market, some procedures must have been completed. Here are those processes:

Open a Demat account:

You must have a Demat account to buy shares. Just like opening a bank account to keep money, you need a Demat account to keep shares. Demat account is now mandatory. What is needed for the Demat account?

To open a Demat account, you need to have a passport size photo and a copy of citizenship. With these documents, you can open a Demat account by going to the bank where you have your own account or any other bank.

You can also open a Demat account by going to Merchant Bank (Capital). You must have money in your bank account before opening a Demat account.

Open a trading account:

In order to trade shares in the secondary market, you also need a trading account after Demat. This account can be opened by going to the broker’s office. A passport-size photo, a copy of citizenship, and a ‘confirmation letter’ of Demat were required for this.

A ‘Confirmation Letter’ can be obtained from the place where you opened the Demat account. This work can be done without any hassle by going to the broker’s office.

Online feature:

After completing the above procedures, you will be able to go to the secondary market and buy shares. But now that the online trading system has started, there is no need to go to a broker company to do business like before.

With the online facility, you can buy or sell shares of the company you want at home directly from mobile.

An agreement has to be done between brokers and investors to trade online. According to him, after the agreement, the username and password will come in the email. Shares can be traded using a username and password. Information on how to trade online can also be obtained from a broker.

No collateral required to sell shares. But if you want to buy, you have to put the security of at least 25% through Connect IPS. Depending on the risk, the broker may decide to increase or decrease the security percentage from 25%.

What is more important to understand here is that the ‘T+2 System‘ has been implemented in the Nepali stock market since January 24, 2021.

This is a system that clears transactions in two days. If you buy a share, you must pay within 2 days. However, the broker company may not send the number of shares you sold to your account within two days. Usually, the amount can be delayed for 1 day.

The reason behind delaying is, the money sent by the buying investor to the broker reaches the CDS (credit default swap), which may be delayed by one day as a small process has to be completed.

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