Stock market basics: What is an IPO?

Julie Brownlee, Fsp Invest, 08 Jul. 2015

Tags: ipo, initial public offering, what is an ipo, stock market, listing on the stock market, buying ipos

When a company decides to list on the stock market, it will do this via an initial public offering (IPO).

So what does this entail? And it is a good idea investing in IPOs?

Read on to find out…

The ins and outs of an IPO

A company decides to list on the stock market to raise capital by selling shares in its business. The first stage is the IPO.

An IPO is a lengthy and detailed process as a company must comply with a number of listing requirements set out by the Johannesburg Stock Exchange.

When a company decides to list, it will usually use the assistance of a large financial institution to help. In some cases, a company will use more than one institution.

These financial institutions tend to underwrite the IPO. This means it will buy a certain amount of the total shares if the IPO is undersubscribed. In other words, there aren’t enough buyers.

When a company lists, it has to decide how many shares it will issue at its IPO. Along with the financial institution, it will determine the price for the shares.

This risk here is not enough investors want a piece of this new company. This can leave the company falling short of the capital it wants to raise by listing. And this is the reason why companies have financial institutions underwriting the listing.

IPOs are part of the primary market function of the stock market. Once a company completes its IPO, its shares will freely trade between buyers and sellers on the stock market.

When it comes to IPOs, there tends to be more in boom times than harder times.

Should you buy into IPOs?

Buying into IPOs can be risky.

The day shares list on the stock market, they may soar as investors scrabble to get their hands on them or they may plunge. It all comes down to investor demand.

This is a risk you take with buying into IPOs. It can pay off handsomely, equally so it may not.

Some investors like to stay away from new listings and let a couple of years pass before looking at newer companies.

So there you have it. What an IPO is.

*********** Recommended Product ************


This experienced sports analyst won 95% of the bets he placed in the last six months.

And so did the 650 people following his tips…

Read on to find out how you, too, can CASH IN on his tips for the next big win…


Related QA

akossuth asked:
I am a new investor and about to embark on putting together my portfolio. I have an account with Easy Equities. Regarding your portfolio in your [read more]
Published at 13 Feb. 2018 in: Stock Market Share portfolio 1 Answer
oliviees asked:
Dear Gavin / Timon Regarding your cfd tip sent on 24 February 2017 for APN (Apsen), titled ‘Our broker’s top trade of the week’. I am [read more]
Published at 06 Apr. 2017 in: Stock Market Cfd 1 Answer
hjb777 asked:
Good afternoon, Please can you advise your recommendations (buy, sell and hold) on the following shares for 2017 (short [read more]
Published at 21 Feb. 2017 in: Stock Market Shares 2017 Short term 1 Answer
jacquesprinsloo77 asked:
Hi where can i get a detail table list on daily basis / live of all shares on jse + current volume traded + current /delaid price of share.? [read more]
Published at 08 Nov. 2016 in: Stock Market Helpdesk 2 answers
npadiachi70 asked:
my question for today is what advise can you give on trading binary options? is good or bad too rsiky or same as currency trading [read more]
Published at 12 Oct. 2016 in: Stock Market Online marketing 1 Answer

Related articles: