Initial Public Offering

Full form of IPO is Initial Public Offering, it is the method to introduce the shares of a particular company in front of everyone to buy. For IPO first of all, the company gets listed on Share Market and then offers the shares to the investors. Whenever a company wants to borrow money from people through Share Market then the company has to bring its IPO. There can be different reasons to bring IPO for example, maybe the company is new in the market or some companies want to increase its business. When a company brings its IPO, it needs to explain the reason behind taking money from people through the Share Market and how the company will going to use the money. Before bringing IPO, the company gives a brief introduction about itself.
The company, which offers the shares is known as Issuer. A company issues its IPO with the help of an investment bank. After issuing IPO, the shares of the company traded in the open market. Those shares are sold and bought to the investors through the medium of the secondary market or share market
The company, which offers the IPO gives a prospectus to the investors before issuing IPO. The prospectus should be carefully read before investing. By reading this you can understand that how the company will use the money. In this prospectus, it gives all the detailed information about the company. Through this prospectus, you may make an idea that the company will make profit or not.

IPO can be bought in two ways:
1. Fixed Price
2. Book Building

  1. Fixed Price: In this type of IPO the price of shares at which securities allotted or offered, is fixed and known in the advance to the investors. Only after the closure of the issue, we can find the demand for the security issued. The Refund is given after allocation If payment is made at the time of subscription.
  2. Book Building: In this type of IPO the price of shares at which securities allotted or offered is not known in the advance to the investors. Only a denotative price and demand for the security is known. Payment is only after the allocation.

Types of Market: The financial issues are bought and sold in the market knows as Capital Market. It is divided into two markets Primary and Secondary.

  • Primary Market: It is also known as New issues Market too. It creates new securities and offers them to the public directly. This transaction is conducted by the issuer and buyer. These trades provide a chance for investors to buy securities from the bank that did the initial underwriting for a special stock. An IPO happens when a private company issues its stock to the public for the first time.
  • Secondary Market: It is where the issues created in the primary market are bought and sold. For buying equities, the secondary is referred to as the Stock Market. In the secondary market, investors trade with the issues which are traded previously with involving company issuing.
    The secondary market is also divided into two categories:
    1. Auction Market: All the institutions and individual who wish to trade the securities assemble together in a common place to announce the price of securities on which they are ready to sell and buy. This idea has arrived so that the systematic market should be strong by bringing all the parties together and to have prices which are mutually agreeable.
    2. Dealer Market: It does not need parties to come together in a particular location. Rather, the participants of the market joined by electronic networks.

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