Stock market basics · updated October 21, 2026
What is an IPO (initial public offering) and how does it work
An IPO is the moment a company first sells its shares to the public and lists on a stock exchange. After the IPO, its shares can be bought and sold every day like any other stock.
How it works
With the help of banks, the company sets a price or a price range and a subscription period, usually one or two weeks. Investors sign up through their broker with the amount they want to invest. If demand is higher than the number of shares on offer, everyone gets only part of what they asked for (the allocation). Then the shares start trading on the exchange, at whatever price buyers and sellers agree on.
Worked example
A company sells shares at $20 in its IPO. On its first day of trading, the stock closes at $23.
If you asked for 100 shares and the offer was 4 times oversubscribed, you got around 25.
Worth knowing
Some IPOs jump on the first day, others fall below the offer price. Studies show that, on average, newly listed stocks do worse than the market in their first few years.
When an IPO can fool you
Little history: newly listed companies have less public data. Sellers know more: the founders and funds selling in the IPO pick a moment when the price suits them. The lock-up period: after a few months, insiders who were not allowed to sell can sell, and the price can drop.
Related terms
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Questions about an IPO
How do you take part in an IPO?
Through your broker, if it has access to the offer. You sign up during the subscription period with the amount you want; the money is blocked until the allocation.
Is it worth buying stock in an IPO?
There is no rule. Some offers are fairly priced, others are expensive. Read the prospectus: how much the company earns, how much debt it has and who is selling the shares.
These explanations are for information only. They are not a recommendation to buy or sell.
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