What Is an IPO?
Initial Public Offerings create some of the most volatile trading days of any stock's life. Here's how they work and what makes them so unpredictable.
Basics · July 15, 2026 · 5 min read
An IPO (Initial Public Offering) is the process by which a private company sells shares to the public for the first time, becoming a publicly traded company. Before an IPO, ownership is held by founders, employees, venture capital, and private equity. An IPO allows early investors to realize their gains, while also raising new capital for the company.
How the IPO Process Works
A company going public hires investment banks (underwriters) who conduct due diligence, value the company, write a prospectus, and conduct a 'roadshow' pitching to institutional investors. Based on investor interest, underwriters set an IPO price. Large institutions receive shares at this price before trading begins. On the first trading day, the stock opens — often at a significant premium as retail demand meets constrained supply.
The First Day: Why IPOs Are So Volatile
IPO first days are unpredictable for several reasons: supply of shares is limited; retail demand floods in when trading opens; there are no established technical levels to anchor the stock; and early investors may begin locking in gains. The result is often wild swings — stocks that open 100% above IPO price and fall sharply the same day, or stocks that drift lower for months as excitement fades.
The Lock-Up Period
A critical date: the lock-up expiration. Employees, founders, and early investors are typically prevented from selling for 90–180 days after the IPO. When lock-up expires, a wave of insider selling often hits the stock. Many IPO stocks experience significant selling pressure at lock-up expiration as insiders take profits — mark this date for any IPO in your watchlist.
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