Stocks 101
What Is an IPO? How a Company Goes Public
What an initial public offering is, why companies go public, and the risks of buying hot IPO stocks.
Beginner investing lessons and fake-money practice from the maker of Quoliv.
Quick answer
An IPO, or initial public offering, is when a private company sells shares to the public for the first time and lists them on a stock exchange. The company raises money to grow, and early owners can start selling. After the IPO, anyone with a brokerage account can buy and sell the shares.
What you’ll learn
- An IPO is a company's first sale of shares to the public.
- Companies go public to raise money and let early investors sell.
- Most everyday investors buy after trading starts, not at the IPO price.
- New listings can be very volatile in their first months.
- Insiders are often locked up for a period, then may sell.
This explanation is part of our Stocks lessons path, where you can explore the idea in short lessons and quizzes.
How it works
- The company hires investment banks to set a price and find buyers.
- It publishes a prospectus explaining the business, finances, and risks.
- Shares are sold at the IPO price, mostly to large investors.
- Trading opens on an exchange, and the price is set by buyers and sellers from then on.
Why IPOs are risky for beginners
- There's less public history to judge the company by.
- Hype can push the first-day price far above the IPO price.
- When insider lock-up periods end, extra selling can pressure the price.
- Many newly listed companies aren't profitable yet.
A famous name doesn't make an IPO a safe bet. Read the risks section of the prospectus.
Sources and methodology
This guide was written for education using the primary sources below. It does not evaluate your finances or recommend an investment. Read our editorial policy.