Please try to explain in easy terms as I don’t understand much technical terms…..

More at: r/NepalStock by Flaky_Active9876

1 comment
  1. Let’s say an investor has invested 10 crores in stocks. They go to a bank and take margin loan. They can get 70% of their total investment. That is 7 crores. They again buy stocks. They again go to the bank and take margin loan. They get 4.9 crores. They again buy stocks. They again go to the bank and take margin loan. They again get around 3.5 crores. They again buy stocks. They again go to the bank… And this continues.

    They use this free money to corner and pump stock prices artificially. If this continues – then the market would inevitably become a bubble and when that bursts, all hell would go loose.

    To prevent such a scenario in the future, NRB, in its monetary policy, introduced a new rule. One can only get margin loan up to 12 crores – max 4 crores from one bank.

    This is one of the best decisions taken by NRB. The artificial inflation of stock prices would probably reduce now. I believe the correction that is happening now paves the way for a healthy and stable market growth.

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