Stock market basics
Initial public offering (IPO)
Definition
An IPO is the first time a company sells its shares to the public and lists them on a stock exchange. The offer price is set with the underwriting banks before trading starts, and the first days of trading can be very volatile. Our IPO guide walks through the process.
Example
Suppose company XYZ prices its IPO at $20 a share and sells 10 million shares, raising $200 million before fees. Demand is strong and the first trade on the exchange prints at $31, so investors who got no shares at the offer price can only buy at a price 55% higher. Over its first week, the stock swings between $24 and $35.
Hypothetical numbers, for illustration only.
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