We have all heard about the big IPOs lately, a few big ones being Facebook back in 2012, with a launch price of $105 billion, or Twitter at the end of 2013 which launched at $24.48 billion. There is all that buzz around it, prior to the IPO, like at the moment for the upcoming IPO of Alibaba. IG the leading financial spreadbetting provider, has a tool that allows you to trade such IPOs, and estimate how much the launch price will be.
IPO stands for Initial Public Offering, and marks the day a stock starts getting traded on a securities exchange for the very first time, its stocks being sold to the general public. As a way for a company to be trading publicly on the markets, it also allows a cash influx to repay early investors, generally with a tidy profit. You probably read stories of early Facebook employees who got several million dollars out of the IPO, without being very high in command. On the other side, as the company trades freely, it has to display a lot of information that could remove entry barriers to its competitors. So from the initial launch price of an IPO, your stock could go up or down, making or losing you money in the process.
In order to become better informed, you need to do your homework, and find as many details as possible from the company. Let’s take Alibaba’s IPO, that should go live in a couple of days. Traders are speculating it could be the biggest IPO ever, surpassing Facebook at over $150 billion. Traders’ sentiment is compiled on the grey market, which is golden information as far as making up your mind regarding the IPO goes.
Estimates at the moment say Alibaba will go public in the $115 to $245 billion range. Knowing that Facebook currently is valued at $189 billion, Alibaba may have a higher IPO figure than Facebook’s worth.
While it looks like easy money, and a quick way to make a short time profit, you need to remember that those financial products are highly volatile. That means if you trade on margin, the downswings could trigger a margin call, making you lose most of your investment, even if the stock bounces up a few days later. If you are not experienced with IPOs and trading in general, I would suggest you start trading with a demo account, or open a small trading account only with money you can afford to lose. And for the first few months, never trade on margin, as your savings can get wiped out overnight. Personally, I think the online world has been changing so fast, compared to what it was 10 years ago, let alone that 30 years ago it barely existed, so while I may be having a little try at short term trading, stocks like Facebook or Twitter are not ones I would hold for the long term. In 50 years I am almost certain people will still drink Coke and shop at Walmart, but whether they will still be on Facebook is debatable. Remember MySpace, it used to be all the rage!
I know an IPO give benefits to private companies like enabling cheaper access to capital and what I mostly like is it creates multiple financing opportunities (I am talking about cheaper bank loans). However, the cons of it which I really hate is the risk that required funding will not be raised.
Jayson @ Monster Piggy Bank recently posted…Ways to Sell your Home Faster
I was in the FB and TWTR IPO’s. Word to the wise… if you are not an experienced trader, wait till the volatility dies down before jumping in. If you decide to jump in the IPO market, understand that your biggest hurdle to overcome will be your emotions. You may go from happy to panic in seconds.
Chris @ CentsToMe recently posted…Is This Stock The Next Berkshire Hathaway?