IPO means Initial Public Offering. This is a company\’s first sale of stock to the general public.

In the late 1990s, with the stock market boom, there seemed to be a new IPO every week, making people rich overnight. After the stock market bubble burst in 2000, the IPO have become less common, but there still are some coming to the market every year. There not as visible as they were in the 1990s but they still can make you a good profit if you know where to find them!

IPOs become available when a company decides to sell, for the very first time, some of their stock to the general public, in order to raise funds to benefit the company.

The company will hire a brokerage firm to handle its initial public offering. They can use one or more brokerage firms and these firms will be responsible for selling the stock to the public. Each of these brokerage firms will have a certain number of shares to sell. The brokerage firms will produce a brochure of the company. It will state the history, financial and workforce information as well as other details of the company. They will use this brochure as a sales tool to interest investors into buying the shares.

The brokerage firms\’ first port of call will be the cash-laden institutional investors, such as mutual funds, hedge funds, and pension funds. Then they will target those wealthy clients who can afford to buy large chunks of the shares. These two sets of clients will pay the \’offering price\’ for the shares. This is the price which the company and brokerage firms decide the shares should be sold for. In theory the \’offering price\’ is also the price at which the shares will be sold on the first day of trading, however, it does not always work out that way.

It is on that first day of trading that the general public have the chance to buy the stock for the first time. So, as you can see, the private investor is at the bottom of the pile when it comes to getting their hands on IPOs. If you want a chance at buying IPOs, you might want to consider joining a brokerage firm. However, before you dive feet first, you must do some research, ask the brokerage firm some questions, like if they offer IPOs, how much money do you have to invest, and how many transactions you have to carry out in order to be eligible to invest in IPOs.

A final warning, although money can be made quickly from a successful IPO, please know that they can be very high risk transactions. They are a speculative stock as they are brand new and have no track record. Therefore, if you are going to invest in an IPO, it is important that you choose the right one. You must do your research and only invest if the company offering the IPO is constantly in the business news or it is a well known company. Do not just go for the first IPO you see. Take your time, do your research and make sure that when you choose to invest in an IPO, it is with your eyes wide open, having done all the homework beforehand.

Author Bio: D. Wood, learn to trade like a professional or check out our blog for help, tips and information.

Category: Finances
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