Initial Public Offering (IPO)

An initial public offering (IPO) is the first time a private company sells shares to the public and lists on a stock exchange. It lets the company raise large amounts of capital and gives early investors and employees a way to cash out. After the IPO, anyone can buy or sell the shares on the open market.

Investors watch IPOs for early access to fast-growing companies, but new listings can be volatile and hard to value with limited public history. Read the prospectus to understand the business, its finances, and the risks before buying. Many seasoned investors wait a few quarters after an IPO to let the price settle and to see real earnings reports.

A startup valued privately at 5 billion dollars might sell 10 percent of itself in an IPO, raising 500 million dollars. If shares are priced at 20 dollars and demand is strong, the price may jump on the first trading day, though it can also fall sharply later.