GLOSSARY // Market Structure
IPO (Initial Public Offering)
An IPO is the first sale of a company's shares to the public, converting a private company into one listed on an exchange. Investment banks underwrite the deal: they build the order book from institutional investors, set the offering price, and typically earn fees around 4-7% of the proceeds.
The mechanics create the famous first-day pop. The offering price is set the night before trading; the opening trade is set by an auction the next morning, and hot deals routinely open 20-50% above the offer — a gain that goes almost entirely to the institutions allocated shares at the offer price, not to retail buying the open.
Insiders and pre-IPO investors are typically locked up for 90-180 days after the debut, so early trading floats only the newly issued shares. The lockup expiration, the first two earnings reports, and quiet-period expirations are the calendar events that define an IPO's first six months.
A company sells 20,000,000 shares at $18.00, raising $360,000,000 before fees. The stock opens at $24.50 — a 36% pop worth $130,000,000 that accrued to allocated institutions. A retail trader who bought the open at $24.50 and watched it fade to $21.00 over two weeks lost 14% on a deal that was up 17% from the offer.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.