What is an IPO

What is an IPO (Initial Public Offering)? It’s the first public offering, or the sale of company shares to everyone, or the company’s listing on the stock exchange. We are sure you have heard that there is a stock market where companies or individuals buy or sell shares. So, before you take any action on the market, you first need to enter it. Globally, the company’s entry into the market can be called an IPO.

What is the essence of an IPO

The financial market is constantly growing, the flow of cash is increasing, and the race for them is growing. Therefore, more and more companies want to go to the stock exchange. This is an opportunity to raise finance by selling a stake in a company to investors in the form of shares. There is an IPO for this process.

The bottom line is that before entering the stock exchange, a company goes through an appraisal procedure – its value is determined. Then the company sells a part, for example 15%. For this share, shares are issued, which will be traded on the stock exchange. Those interested in buying announce how many shares they are willing to buy and for what amount. In the future, the company’s shares can either rise or fall. The investor himself decides when to sell them in order to earn money.

Procedure for an investor

Before you get the opportunity to buy shares of companies that go public, you need to go through several stages. First of all, register with a broker and make a certain deposit. The amount of the deposit depends on who you want to work with. American brokers are more expensive, but it is possible to work with them directly. Working through intermediaries involves paying a commission.

Important! There are certain limitations. You can sell shares after 92 days, the so-called lock-up. During this time, you can understand whether they are growing in price or falling.

After registration, the broker informs the investor when and which company is going through the IPO. After studying the company’s documentation, the investor decides to buy its shares and in what volume, or not. There are many strategies for buying and selling shares, we will talk about them, about exchanges, brokers, and much more in the following articles. The main thing is that shares are bought and sold, and the one who buys cheaper and sells more makes money. In addition, an IPO is an opportunity to be at the forefront of the formation of fast-growing and profitable startups.

IPO in numbers

In 2020 alone, more than 400 American companies went public, an 80% increase over the previous period. More than 218 billion investments were attracted, and the return on the first day of placement was 29%. The average stock return is 79% today.

Interestingly, Facebook went public in 2012, at the time of the release the share price was $ 38, after three months it fell by 50%. We are sure that the majority of investors began to sell shares en masse, and now they regret it. Facebook share price today is $ 260 +. It was those who made money who waited out and, on the contrary, bought even more shares at the time of the drawdown.

An IPO for a company is an opportunity to raise money for a business. For an investor, it is an opportunity to get as much income as possible with a minimum investment.

As a result of the IPO, the status of the business changes, instead of being private, it becomes public, and anyone can become a shareholder.

More information about IPO investments can be found here.