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Trade with IPO Trading

An initial public offering (IPO) is the first time a company issues shares to the public. This is when a private company decides to go ‘public’. An unlisted company (A company which is not listed on the stock exchange) announces initial public offering (IPO) when it decides to raise funds through sale of securities or shares for the first time to the public. In other words, IPO is the selling of securities to the public in the primary market. A primary market deals with new securities being issued for the first time. After listing on the stock exchange, the company becomes a publicly-traded company and the shares of the firm can be traded freely in the open market.

In other words, a company that was privately-owned until then becomes a publicly-traded company. Before the IPO, a company has very few shareholders. This includes the founders, angel investors and venture capitalists. But during an IPO, the company opens its shares for sale to the public. As an investor, you can buy shares directly from the company and become a shareholder.

Benefits of IPO Trading

Traders invested in making their investment of a newly public company must invest in IPO. Some of the benefits of Dreivative Trading are discussed below:-

First Mover Advantage - This is especially true when reputed companies announce an IPO. You get a chance to buy the company’s shares at a much lower price. This is because once the company’s shares reach the secondary market, the share price may go up sharply.
High Returns - If the company has a potential to grow, buying shares in an IPO can be benefit you. Strong fundamentals of the company mean that it has a good chance of growing bigger. This can be advantageous to you as well. You stand a chance to earn good returns over the long-term.
Listing Gains - When a company gets listed on the stock market, it may be traded at a price that is either higher or lower than the allotment price. When the opening price is higher than the allotment price, it is known as listing gains.

Different types of IPO

Here are the list of various types of IPO.

Fixed Price Issue

Under the fixed price issue, the company sets a fixed price at which all their shares will be offered to the investors. To make this happen, a company hires a merchant banker, an entity that will appraise and reduce the level of risk for a company. The merchant banker finds out the total current value of a company along with its future prospectus. Apart from finding, they also make a risk overview of all the investments and how it would reimburse the investors when they face such enormous risk.

Book Building Issue

In the book building issue, the price is released during the process of IPO. The company sets no fixed price in this process, but there are two different price bands. The lowest price band is known as the “floor price,” and the highest price band is known as the “cap price.” However, investors interested in buying the shares have to make a bid within a demanding time before the company sets the price. The final price depends entirely on the bids the company obtains from the investors.

Pros of IPO Listing

Few advantages of IPO Listing are discussed below:-

Fundraising - Serving as the primary advantage of an IPO, the proceeds raised via an IPO alone justify the decisions companies make to go public. This is owed in large part to the ample opportunities for investment now possible due to the influx of capital.
Exit Opportunity - All stakeholders that contributed their time, finances and resources to build their company from the ground up can finally potentially realize their expenses. IPOs provide stakeholders with the opportunity to exit with potentially vast sums of money.
Publicity and Credibility - When a company hope to grow, it will need to amplify its publicity and exposure to would-be customers who can learn more about the company and its products with the limelight needed to attract more clientele.

Cons of Derivatives Market

Few disadvantages of IPO Listing are discussed below:-

Market Pressure - The stock market has a short-term approach with profits being key whereas founders focus on the long term and the impact the company will have on the world leading to issues.
Potential Loss of Control - IPOs can reduce the control the founders of a company may have on their company. Shareholder votes and public criticism can force leadership to be changed.
Transaction Costs - The costs associated with initial public offerings are expensive. Underwriters fees are known to be the most pronounced following legal fees, auditor fees, registration and printing.