Quick answer

An IPO (initial public offering) is when a private company sells shares to the public for the first time and lists on an exchange such as Nasdaq or the NYSE. The company files a registration statement with the SEC, sets a price range, prices the shares the night before trading, and then the stock opens for anyone to buy or sell.

Key takeaways
  • The company files a registration statement, usually Form S-1 (Form F-1 for many foreign companies).
  • Banks called underwriters help set the price and sell the shares.
  • The price range can change before the final price is set.
  • The IPO price and the first trade price are often different.
  • Insiders usually agree to a lock-up before they can sell.

What are the steps of an IPO?

  1. Hire underwriters. Investment banks guide the offering.
  2. File with the SEC. The registration statement includes a prospectus with the business, risks and financial results.
  3. Set a price range. An amended filing shows the expected price range and share count.
  4. Roadshow. Management presents to investors, and the banks gauge demand.
  5. Pricing. The final price is set, usually the evening before trading.
  6. First day of trading. The stock opens on its exchange.

What should I read in an IPO prospectus?

The prospectus is the main source of facts. Useful sections include the business summary, risk factors, use of proceeds (what the company will do with the money), the financial statements and the share structure. The final prospectus is filed on a form called 424B after pricing.

Why is the opening price different from the IPO price?

The IPO price is what the first buyers in the offering pay. The opening price comes from orders on the exchange once trading starts. If demand is strong, the stock can open higher. If demand is weak, it can open lower. Early trading can move quickly in either direction.

What is an IPO lock-up period?

A lock-up is an agreement where insiders and early investors promise not to sell for a set time after the IPO, often 90 to 180 days. When it ends, more shares may come to market. The terms are in the prospectus.

How do I read an IPO calendar?

An IPO calendar lists the company, the planned ticker, the exchange, the expected date and the price range or final price. Dates can move and deals can be postponed. Trade Conquest’s IPO page lists upcoming offerings in one place.

Frequently asked questions

What does IPO stand for?

IPO stands for initial public offering: the first time a company sells its shares to the public and lists on a stock exchange.

What is an S-1 filing?

Form S-1 is the registration statement most U.S. companies file with the SEC to go public. It includes the prospectus with business details, risks and financial results.

Can I buy shares at the IPO price?

IPO shares are usually allocated by the underwriters, often to large clients. Some brokers offer limited IPO access. Most investors buy once the stock starts trading.

What is a lock-up period?

An agreement that keeps insiders and early investors from selling for a set time after the IPO, often 90 to 180 days.

Keep learning with these related guides, or see every guide and tool on the Learn page.

Sources

Not financial advice. This article is for educational purposes only and is not financial, investment, legal or tax advice. It is published by Trade Conquest, owned and operated by Nite Cat, LLC, 2885 Sanford Ave SW #35064, Grandville, MI 49418. Rules change; check the cited official sources for the latest version. Investing carries a risk of loss. Trade Conquest does not recommend buying or selling any security.