The initial sale of stock by a private company to the public which turns
it into a public company. IPOs are typically offered by smaller,
younger companies who are seeking to expand through the infusion of
capital from the IPO. It can also be done by large privately owned
companies looking to become publicly traded.
Most IPOs use the services of an underwriting firm, which helps it
determine the type of security to issue. The underwriting firm also
helps select the price and timing for the IPO.
The initial day of trading as well as the near term can see huge swings
in price. For small private investors, this makes IPOs tough to predict
and highly risky for small investors. Most companies with an IPOs are
going through a transitory growth period, which adds to the uncertainty
regarding their future values.
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