An IPO or Initial Public Offering is an offer of the company securities to the public, which occurs when a company is first listed on the stock market.
On this page, you will find a simple guide to IPOs wherein we explain how it works, how to participate in it and how you can profit from it with online CFD trading.
We will then analyze the types of IPOs and the benefits of each type for both companies and investors and traders.
Types of IPOs
In general, it is always the case that IPOs are promoted by a company and a group of entrepreneurs/investors to open up to a wider audience of investors. Initial public offerings, however, can be of three types:
- OPS or public offer of subscription, which provides investors with the possibility of subscribing to newly issued shares;
- OPV or public offer for sale, consisting of the sale of existing shares owned by the current shareholders;
- OPVS or public offer for sale and subscription, which consists of the joint exploitation of the OPS and OPV methods.
Therefore, to summarise, the shares of an IPO may be newly issued (OPS) or already existing and which are nevertheless listed on the stock exchange (OPV).
Very often there are already shares but new shares are issued and sold to the public (OPVS).
What are the advantages of an IPO?
An IPO has several advantages, both for those who issue shares and for those who invest and trade.
We start with the advantages for companies that decide to list their shares on the stock exchange.
The advantages for companies that promote an IPO are basically of 4 types: financial, operational, organizational and tax.
From a financial point of view, the first obvious result for a company is to obtain funds. But what can these funds be used for other than for a re-investment in productive activities?
For example, to reduce debt and the cost of debt capital. In addition, as a result of listing on the stock exchange, a listed company may have access to risk capital at lower costs than an unlisted company.
In addition, the issued security, following the listing, can be used for exchange or payment transactions in extraordinary transactions, such as acquisitions or mergers.
Finally, market entry at a particularly favorable time can give rise to a physiological optimistic boost from investors.
In simple terms, a period of growth for the economy offers certain advantages to those trading on the stock exchange, compared to periods of decline, uncertainty, instability or crisis.
From an operational point of view, which therefore concerns the operations of the company, an IPO makes it possible to obtain contributions and support for operational management from private shareholders but above all from institutional investors.
In addition, with the IPO there is a sure increase in marketing that can help the overall market of the company.
Also, a listed company is subject to rules and must meet certain requirements, which can become a “quality certificate” in the eyes of potential investors and customers.
The listing on the stock exchange, in addition to requiring the satisfaction of certain requirements and the obedience of certain standards, also requires that a company equips itself with information flows of a certain level, both to the market and internally.
This obviously has positive effects on the management of the company itself.
The issue of shares also allows the possible distribution of the same to employees, going to involve them more for the production results and balance sheet of the company.
The IPO may produce tax incentives linked to the listing of a company on the stock exchange.
Decree Law 537/1994 and 466/1997, for example, have provided tax relief, even if temporary, for companies that provide their listing on a stock exchange on a regulated stock exchange.
Benefits for Investors and Traders
As for the benefits for investors and traders, why should an IPO be an advantage for those who “put their money where their mouth is”?
It should be borne in mind that the IPO is a time when a company is testing the market for the first time and that this could also give unfavorable results.
It is an exchange of trust/right price, which on many occasions has turned out to be a “low price”. Think of those who trusted, for example, the Amazon and Facebook projects, or the Apple project.
That trust has certainly been repaid. How? To say “with the increase in the price of shares” would not be totally correct, because in that case there were people who believed in ideas, in the project and others who worked hard to grow the company with complex plans for innovation, technology, updates, market research, engineers, designers, computer scientists and much more.
Each company has its own peculiarities, its own market, its own period. It is up to investors to decide whether or not to “bet” on the progress of a given company.
Having clarified these aspects, let’s now see what are the potential benefits of an IPO:
- Possibility to buy a security at a “basic” price that could get strong increases already in the first hours/days/weeks of trading, as well as in subsequent years
- Possibility to trade upwards or downwards by trading CFDs online, on numerous IPOs throughout the year, with amounts lower than those required for traditional investment, in order to benefit from price changes in the first hours/days of trading
Online IPO Trading
Every week there are several IPOs on which you can exercise your bullish or bearish forecasts.
Each week, several IPOs are launched all over the world, which often do not escape on the most stock-filled trading platforms.
While with a traditional investment you should find the right channel to buy the shares of a particular company (e.g. startup), with online trading you have everything available on the trading platform.
In addition to the variety, certainly important, are also decisive the possibilities of:
- Trading upwards and downwards (unlike with traditional share purchases)
- Closing a position whenever you want in an open market (you can close it even after a few minutes, or even seconds, from the start of trading)
This means that you can expect an ICO, study a market direction, open a position as soon as trading starts and wait for the desired result to close.
Added to this is the possibility of making automatic trading operations, setting automatic stop losses, take profits, trailing stops and opening a position automatically only when the price reaches a certain level.