What is an initial public offering (IPO)?

Definition

By launching an IPO, a privately owned company transforms into a publicly traded entity, making its shares available for purchase by investors on a public stock market.

Understanding an IPO

An IPO or Initial Public Offering is the first time a company offers its shares for sale to the public. This is a complex process, and investment banks typically assist the company in determining the appropriate share price for the stock market. Finally, on List Day, the shares become available for trading.

Gist

After a company completes its IPO, its stock becomes available for purchase on the public market for the first time. Though the excitement around the event may encourage some to invest in the recently IPO'd companies, it's important to recognize that such investing can be like taking a plunge into the deep end - it may not be suitable for inexperienced investors seeking reliable or predictable investments. The SEC's investor bulletin provides further details on investing in an IPO.