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Market Structure

IPO (Initial Public Offering)

The first time a private company sells shares to the public on a stock exchange. Also called "going public."

What is an IPO?

An IPO (Initial Public Offering) is when a private company sells shares to the public for the first time. Before the IPO, ownership is limited to founders, employees, and private investors. After the IPO, anyone with a brokerage account can buy shares on the open market.

How the IPO process works

  1. The company hires investment banks (called underwriters) to manage the offering
  2. SEC filing: the company files an S-1 registration statement disclosing financials, risks, and use of proceeds
  3. Roadshow: company executives pitch institutional investors to gauge demand
  4. Pricing: based on demand, the underwriters set an IPO price per share
  5. First day of trading: shares begin trading on the exchange. The opening price often differs significantly from the IPO price

Trading IPOs

  • First-day volatility: IPOs often see massive price swings on day one as the market discovers the fair price
  • No historical data: there are no prior support/resistance levels, no moving averages, no established patterns. Technical analysis is limited
  • Lock-up period: insiders and early investors usually cannot sell for 90-180 days after the IPO. When the lock-up expires, a wave of insider selling can push the price down
  • Hype vs reality: heavily hyped IPOs often open far above the IPO price, then decline over the following weeks as the excitement fades
Retail traders almost never get shares at the IPO price. That allocation goes to institutional investors. You buy at whatever the market opens at on the first trading day, which is often significantly higher.