Understanding how NEPSE actually works — the mechanics behind order matching, price limits, and settlement — is essential for any serious investor. Many frustrations that new traders experience (orders not executing, unexpected price movements, inability to sell newly purchased shares) come from not understanding these fundamental rules.

This guide explains the core trading mechanisms of NEPSE in practical terms.

Trading Hours

NEPSE operates Sunday through Thursday (Nepal's work week). Friday and Saturday are market holidays, along with public holidays announced in advance.

Pre-Open Session: 10:30 AM - 11:00 AM

The market day begins with a 30-minute pre-open session. During this period:

Investors can place orders (both buy and sell)
No trades actually execute during this window
Orders accumulate in the system
At the end of the pre-open session, a single equilibrium price is determined for each stock using an algorithm

How the pre-open price is determined: The system calculates the price at which the maximum number of shares can be traded (maximum volume). All matched orders at that price execute simultaneously at the single determined price. This mechanism prevents extreme opening gaps and gives the market a fair reference price to start the day.

Why it matters: If a major news event happened overnight (a company announced huge profits or a regulatory change occurred), the pre-open session allows the market to collectively discover the new fair price rather than having early birds get an unfair advantage.

Continuous Trading Session: 11:00 AM - 3:00 PM

This is the main trading session where most activity occurs. During continuous trading:

Orders are matched in real-time as they enter the system
Prices move continuously based on supply and demand
You can place, modify, or cancel orders throughout the session
The trading engine matches orders based on price priority and time priority

Closing Session

At 3:00 PM, the continuous session ends. The last traded price of the day becomes the closing price (LTP) for each stock. Any unexecuted orders are cancelled at the end of the day — NEPSE does not carry orders overnight.

Order Types on NEPSE

Limit Order

A limit order specifies the exact price at which you want to buy or sell.

Buy limit order: "I want to buy 100 shares of NABIL at NPR 950." The order will only execute at NPR 950 or lower.
Sell limit order: "I want to sell 50 shares of CHCL at NPR 620." The order will only execute at NPR 620 or higher.

Limit orders give you price control but no guarantee of execution. If the market never reaches your price, your order sits unexecuted.

Market Order

A market order says "buy or sell at whatever price is currently available."

Buy market order: You will buy at the lowest price someone is willing to sell (the best ask price)
Sell market order: You will sell at the highest price someone is willing to buy (the best bid price)

Market orders guarantee execution (if there are counter-orders available) but not price. In illiquid stocks, a market order can execute at a much worse price than expected.

Practical note: Many experienced NEPSE traders prefer limit orders because spreads (the gap between bid and ask) can be significant in less liquid stocks.

Order Matching: Price Priority and Time Priority

NEPSE uses a standard matching engine with two priority rules:

Price Priority (First Rule)

For buy orders: higher-priced orders get priority (the buyer willing to pay more gets matched first)
For sell orders: lower-priced orders get priority (the seller willing to accept less gets matched first)

Time Priority (Second Rule)

When multiple orders are at the same price, the order that was placed first gets matched first. This is first-come, first-served.

Example: Three people want to buy UPPER at NPR 300. Person A placed the order at 11:05, Person B at 11:07, Person C at 11:10. When a seller arrives offering shares at NPR 300, Person A gets matched first, then B, then C.

Circuit Breakers

Circuit breakers are automatic price limits designed to prevent extreme volatility and potential manipulation.

Individual Stock Circuit Breaker: Plus or Minus 10%

Each stock can move a maximum of 10% up or 10% down from the previous day's closing price in a single trading day.

Example: A stock closed yesterday at NPR 500.

Maximum price today (upper circuit): NPR 550
Minimum price today (lower circuit): NPR 450

What happens when a stock hits the circuit?

The stock does NOT stop trading. This is a common misconception.
The stock simply cannot move beyond the limit price.
If a stock hits upper circuit (NPR 550 in our example), trading continues but no trade can occur above NPR 550. Buy orders can stack up at NPR 550, waiting for sellers.
If a stock hits lower circuit (NPR 450), sell orders stack up waiting for buyers.

A stock at upper circuit with heavy demand: You will see thousands of units in buy orders at the circuit price with few or no sellers. This often happens with small hydropower stocks or newly listed companies during hype cycles.

A stock at lower circuit with panic selling: You will see a wall of sell orders at the floor price with few buyers willing to purchase. This happens during market-wide panics or when bad news hits a company.

Market-Wide Circuit Breakers

If the overall NEPSE index falls sharply within a trading day, market-wide circuit breakers can trigger a temporary halt or an early close of trading. The specific thresholds have been revised over time, but the concept is:

A moderate index decline (e.g., 4-5%) may trigger a brief cooling-off period
A severe decline may halt trading for the remainder of the day

These events are rare but have occurred during periods of extreme market stress.

Circuit Breaker Exceptions

Some special situations may have different circuit limits:

Newly listed stocks on their first day of trading may have wider (or no) circuit limits
Stocks resuming trading after a long suspension may have adjusted circuits
SEBON may temporarily modify circuit limits under special circumstances

T+2 Settlement

Settlement refers to the actual transfer of shares and money between buyer and seller. NEPSE operates on a T+2 settlement cycle.

T+2 means: The trade settles two working days after the transaction date.

Practical Implications:

Action	Day
You buy shares	Sunday (T)
Settlement processing	Monday (T+1)
Shares appear in your DMAT	Tuesday (T+2)
You can sell those shares	Tuesday (T+2) onwards

Important points:

You cannot sell shares on the same day you buy them (no intraday trading in the traditional sense)
You cannot sell shares the next day either — you must wait for T+2
The "T" in T+2 refers to trading days, not calendar days. If you buy on Thursday, settlement happens on the following Monday (skipping Friday-Saturday)
If a public holiday falls on T+1 or T+2, settlement is pushed accordingly

Why T+2 Matters for Record Dates

If a company sets a record date of, say, Shrawan 15 for a bonus share, and you want to be eligible:

You must buy the shares at least 2 trading days before Shrawan 15
Buying on Shrawan 14 is too late — settlement would not complete until Shrawan 16

The Floorsheet

The floorsheet is a complete record of every single transaction that occurs on NEPSE during a trading day. It includes:

Contract number
Stock symbol
Buyer's broker number
Seller's broker number
Quantity traded
Price per share
Transaction time

Why the floorsheet matters:

Transparency: Anyone can verify actual trades
Analysis: Traders study the floorsheet to see which brokers are buying/selling heavily
Confirmation: You can verify your own trades by matching your broker number and contract number
Market intelligence: Large block purchases by specific brokers can signal institutional interest

The floorsheet is published by NEPSE after market close each day and is publicly accessible.

Odd Lot Trading

A standard trading lot on NEPSE is 10 shares. But what if you own 7 shares of a company due to bonus share calculations that left a remainder?

Odd lot board: NEPSE provides a separate trading board for shares less than 10 units. This is specifically for residual shares that arise from:

Bonus share distributions (e.g., 10% bonus on 15 shares = 1.5, so 1 share goes to odd lot)
Rights share fractional entitlements
Inheritance or transfer situations

Characteristics of odd lot trading:

Lower liquidity than the regular board
May take longer to find a matching counter-order
Same circuit breaker rules apply
Separate from the regular order book

Block Trades

Block trades are large transactions negotiated between two parties outside the regular order book.

When block trades are used:

A promoter selling a large stake to another institutional buyer
Transfer of shares between related parties
Large portfolio transactions that would move the market if placed as regular orders

Key rules:

Block trades must be above a minimum threshold (typically a certain number of shares or value)
They are reported to NEPSE and appear in the records
The price must be within the day's circuit limits
Both parties must agree on the terms before the trade is reported

Block trades allow large transactions without impacting the regular market price that retail investors trade at.

What Happens to Pending Orders at Market Close

At 3:00 PM when the continuous session ends:

Unexecuted orders are cancelled: They do not carry over to the next day. If your limit order to buy NABIL at NPR 940 did not execute today, you must place it again tomorrow.
Partially filled orders: If you placed an order for 200 shares and only 80 matched, the remaining 120 are cancelled at close.
No Good-Till-Cancelled (GTC) orders: Unlike some international markets, NEPSE does not support multi-day orders. Every order is valid for that day only.

Tip: If you want to buy a stock over several days at a specific price, you need to manually enter the order each morning.

Trading Holidays and Market Closures

NEPSE is closed on:

Fridays and Saturdays (regular weekly holidays)
All Nepal government-declared public holidays (Dashain, Tihar, Holi, Nepal New Year, etc.)
Any special closure announced by SEBON or NEPSE management

NEPSE publishes an annual trading calendar showing all scheduled holidays. Unscheduled closures (due to protests, national emergencies, or technical issues) are announced as they occur.

Short Selling in Nepal

Short selling — selling shares you do not own, hoping to buy them back cheaper later — has historically been restricted on NEPSE. The regulatory framework has not permitted naked short selling.

There have been discussions about introducing regulated short selling and securities lending/borrowing mechanisms, but as of the current framework, the practice is not available to regular retail investors on NEPSE.

This means NEPSE is fundamentally a "long only" market for retail participants. You can only sell shares you actually own in your DMAT account.

Common Situations and What to Do

Your order did not execute

Check the price: Your limit price may be too far from the current market. Adjust it closer to the Last Traded Price (LTP).
Check liquidity: Some stocks barely trade 100 shares a day. You may need patience.
Upper circuit scenario: If a stock is stuck at upper circuit, there may be no sellers. You will need to try again on subsequent days.

Partial fill

Your order for 500 shares executed only 200. This happens when there are not enough counter-orders at your price. The remaining 300 are cancelled at close. Place the order again the next day.

You want to cancel an order

You can cancel an unexecuted order at any time during the trading session through your broker's Trading Management System (TMS). Once a trade is executed (matched), it cannot be cancelled.

The price moved against you instantly

This usually happens with market orders in illiquid stocks. The first few shares may execute at your expected price, but subsequent fills happen at progressively worse prices (slippage). Use limit orders to prevent this.

You bought shares but cannot sell them

Remember T+2. You need to wait two trading days for settlement. The shares will show in your DMAT portfolio on T+2, and you can sell from that day onwards.

Key Takeaways

Understanding these mechanics will not make you a better stock picker, but it will prevent costly mistakes and frustration:

Use limit orders unless you need immediate execution
Always account for T+2 when planning around record dates
Circuit breakers do not stop trading — they limit price movement
Orders expire daily — re-enter them each morning if needed
Check the floorsheet to verify your trades and understand market flow
Keep in mind that NEPSE is a long-only market — you cannot short sell

The rules may seem restrictive compared to international markets, but they are designed for a developing market where investor protection takes priority over trading flexibility.