When the company wants capital to start a new business or to expand their existing business, they have two primary options to rise fund, either to borrow loans from bank or sell their certain portions of ownership of the company.
Borrowing loan is more risky as interest need to be paid on time. Also, the company needs collateral to get loan from the bank. It may be difficult for new business to manage collateral.
So company offers investment to the general public. Every one wants return from their investment, people aren't going to donate money to the company. So the company in exchange of investment, provide partial ownership, called shares. Such share are provided in the form of IPO.
To issue share to the general public, company should go for the public company and should be listed in the stock exchange. In Nepal, Nepal stock exchange (NEPSE) is only the stock exchange regulatig stock market in Nepal.
After fulfilling the certain legal provisions to issue IPO by the company, company issue IPO to the general public. Now, general public having demand account can apply for minimum of 10 units of the IPO through visiting to the bank, or using online service of meroshare.
Once you apply for share through IPO, you are in the primary market of share market. In this market, company sells share to general public and general public purchase those share. Through the primary market, company collects fund to expand or to start their new business.
If you get allotted, then you will get the certain no of share of the company. In Nepal, basically company provides 10 units each to the lucky applicant if IPO gets over subscribed. In the context of Nepal, all companies share gets over subscribed.
Once allotment process completes, share will be listed on the demand account. You can now trade such share through secondary market.
Secondary market is place where share are traded between Investors multiple times on the market price. From secondary share market, company doesn't collect funds. Here, buyer Investors pays money to seller investors.
In secondary market share will be traded through stock broker. Investors need to open TMS account in one of stock broker of Nepal for the trading of stock. Once broker account is created, you can trade share online using online system of broker in secondary market.
Price of the share will be fixed on the demand and supply basis. If people keep for purchase of share on a certain price and the other people sell the same share in the same price, then the share will be traded and the same price will be the current share price until another transaction is made. If share transactions are again made in the another price then, the recently traded price will be the maket price.
All the companies issuing IPO gets opening range from Nepal stock exchange. In the first day of trading in secondary market, the share price will be fixed on the first trading price. Once the share gets traded in a certain price, it will be the market price and further share will be traded accordingly.