The history of stock trading is a difficult one to pin down. Some point to the East India Company as the place where it all began. Some argue that it could be traced further back, and some argue that stock trading proper began much later. Whatever the case may be, one thing is for certain. Stock trading has never been bigger than it is in the 21st century.
People of all stripes and walks of life are now able to purchase, sell or trade any form of equity security, whether that be stocks, shares or other shares of value. Thanks to the power of the world wide web, we are now able to access any online trading platform, and be linked to a vast array of traders and shareholders from all over the world, willing to trade, buy or sell.
Thanks to these online platforms, such as the ones found here, people are becoming more and more interested in what stock exchanging and trading entails. So, in this article, we thought we would explain one of the most important terms that any trader needs to be familiar with. Just what are IPOs?
What are POs?
But, before we get to IPOs, we first need to talk about POs. PO is an abbreviation for public offering. As you might be able to gather from the name, a public offering is a company’s or corporation’s securities being open to the public. When a company releases their stocks to the public, they must publish a disclosure document, which is called a prospectus, in which they detail, in no uncertain terms, the rights attached to the security which the public can purchase. Along with that, the company must give detailed information about themselves, the state of the company and their financial situation.
It is worth noting, that it doesn’t necessarily have to be shares that are considered public offerings. Under the term fall bonds, warrants and capital notes, as well as various other forms of debt and equity vehicles.
What are Institutional Investors?
Another term to take note of before we talk about IPOs, is an institutional investor. So, just what is an institutional investor? Well, again, as the name might imply, an institutional investor is an entity, rather than an individual, which purchases securities from a company or corporation. This entity can be a pension fund, a central bank, a public company, credit unions, etc.
What are Retail Investors?
In stark contrast to an institutional investor, a retail investor refers to a single individual purchasing shares and securities within a company. In other words, if you choose to purchase a certain stock, the company would consider you a retail investor. So, now that you have been familiarized with these terms, it is finally time to answer the question this article poses. Just what is an Initial Public Offering, or IPO?
What is an IPO?
Another name for an initial public offering is a stock launch. Perhaps you can gather what it means from that term alone. Though, in case you are now aware, an initial public offering, or IPO, refers to a company making its securities available to the public. In other words, it is the moment in time when a private company becomes public, and investors are able to purchase its stocks. The process is achieved when an investment bank, or several, underwrites the IPO, and then arranges for the company’s stocks to be listed at a number of stock exchanges. Once the company has gone public, both retail and institutional investors can purchase shares, bonds or other securities from that company.
Why are IPOs Important?
So what is the point of initial public offerings? Well, IPOs are important for the same reason most important things are important in the world of shareholders and stock trading. They make the company, the shareholders and the investors money.
By going public with a stock launch, companies are than capable of raising their capital, monetizing their shareholders’ investments and of course, the investor themselves can be expected to make some cash. On top of all of that, they enable future shares to be traded publically, further cementing the company’s status.
Some Final Words
As we said at the start, the 21st century has brought about a new golden age in the world of stock exchange. More and more people are becoming curious and interested in what this type of trading can offer. However, many make the mistake of jumping on the bandwagon of a rising trend. For the savvier among you, this article has provided a few explanations and introductory terms. So, before you jump in head-first, into the practice, make sure that you have familiarized yourself with what stock trading is, how it works, and what are the important terms connected to the practice.
