There are two types of security market in Nepal: Primary Security Market and Secondary Security Market.

When a company first issues its share, it is popularly known as IPO (Initial Public Offering) ; and the market for IPO is known as primary security market. You can invest in primary security market or IPO by simply filling up the application form as prescribed by issue manger (a firm which issues IPO on behalf of a company). Generally issue manger appoints firms as collection centers and you can apply for shares in these centers. Depending on the number of share applications, issue managers can face the situation of either under subscription or oversubscription.

Under-subscription is the scenario where the number of share applicants is less than the amount of shares available in the primary market. In such a case, all the applicants get shares from the primary market. On the other hand, over-subscription is the scenario where the number of share applicants is greater than the amount of shares available in the primary market. In such a case, you may or may not receive the shares from the primary market as the companies go for lucky draw or/and random selection to select the shares. Finally, after the distribution of shares from the primary market, the company now gets listed in the Nepal Stock Exchange (NEPSE) and its shares start trading in the secondary market.

If you are an investor looking to invest in the secondary market, all you have to do is go to a broker, licensed member of NEPSE, and buy through them. There are 23 brokers, at present, in Nepal and very soon NEPSE is going to increase its number to 50. When you want to buy or sell shares, you place a buy or sell order to a broker who then acts on your behalf entering your buying or selling order at NEPSE through the computerized system. So in the secondary market, you will find these brokers placing buying and selling orders of different listed companies. The buying broker looks to buy shares at low prices while the selling broker looks to sell shares at high prices. Thus the equilibrium of demand orders and supply orders determines the price of securities in the secondary market.

An investor has to pay the brokers’ commission on equity transactions ranging from 0.7 percent to 1.0 percent in secondary market depending on the traded amount. But investors will not be charged any commission while buying shares from the primary market.