What is an IPO?

Posted by

IPO is the short form of Initial Public Offer.

There are two types of markets in the stock market.

1. Primary Market
2. Secondary Market

When we talk about  the share or stock market, we are talking about the secondary market. But there is also one more market called the Primary Market.

Primary Market

Primary Market is where we buy shares directly from the company when it offers its shares to the general public for the first time (Initially). Hence the term Initial Public Offer. It is a place where the transition of a company from being privately held to publicly held takes place. Once a company offers its shares to the public, it no longer remains private and becomes a public company. Primary Market is sometimes also called as IPO market.

(In case you don’t understand what privately and publicly held companies are: if you can buy shares of a company it means it is a publicly held company and if not it is a privately held company.)

Secondary Market

Secondary Market (a.k.a The Stock Market) is where we buy shares from other persons who have previously bought shares from the company in the primary market and are selling it in the secondary market.

When we buy shares from share market (secondary market) the company doesn’t get any money. We are simply buying shares from some other person and that other person gets the money. (This other person might have bought it directly from the company during its IPO or they may have bought it from yet another person)

But when we buy shares from a primary market, during the IPO of the company, it is only at this time that the company gets money from the public.

So, in conclusion, IPO is the process through which a company transitions from being a privately held company to publicly held company by offering its shares to the general public.

I have already covered How to buy shares in the secondary market in my previous article. In case you are wondering how to buy shares directly from the company during its IPO, I will soon write an article explaining the same.

I want to thank you for reading this article. I truly appreciate that. I hope by reading this article now you understand what is an IPO. If you have any queries, questions or suggestions please comment below. If you liked this article share it with your friends and keep coming to this blog for more articles like this.

Thanks again for reading, I will see you in the next post.

Cheers!

 

 

 

 

4 comments

  1. Are IPO shares available only when a new company is formed, or any time later? Also, what is the time period until one can hold a particular share? And how to renew a share?

    1. IPO shares are available when an already formed company decides to sell its shares to the public.

      There is no time period for holding a particular share nor is there any need to renew it. I think you are confusing holding shares with a fixed deposit. In fixed deposit, there is a time period and renewal option whereas in holding shares there is no such thing. You can buy a share and hold on to it forever if you want or you can sell it the very next day!

Leave a Reply

Your email address will not be published. Required fields are marked *