What is IPO and whether it is possible to make money on it

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YEREVAN, 24 September. /ARKA/. Buying securities is one of the most common ways to invest. Often people want to invest in the business of well-known and large issuers. This is the most reliable and understandable way. However, there is a natural question: is it possible to buy securities of companies debuting on the market? Will it give additional benefits and opportunities? In this article we are talking about the company's entry to the market, participants of the process and ways to get profit./pp bWhy companies benefit from an IPO /b/p b /bp

The initial public offering of securities on the stock market is called IPO (Initial Public Offering). Such a step allows an entity to increase its capital with funds from investors and, accordingly, get an additional impetus for development. Also:nbsp;/pp - public trading increases the liquidity of the securities;/pp - daily quotations help to evaluate the business and make comparisons with other issuers;/pp - the circle of people who know about the company expands;/pp - the level of trust among investors increases./pp bHow to go public /b/p b /bp

The process of going public starts with a review of strategy and rebuilding internal ‘mechanisms’, which can take several years./pp

Next, the company needs to find an underwriter - an intermediary who will conduct a comprehensive valuation, determine the number of shares to be issued and when trading will begin. It also helps to register the company as a public company and present the issuer to potential shareholders. These functions are usually performed by an investment bank./pp

The next stage is the publication and registration of the company information document. This describes the financial statements and business performance, history and structure, industry position, and risks./pp

Then the issuer conducts an advertising campaign. It determines whether potential partners - private investors and large companies - will see the point of investing their money./pp

Next, the trade organiser determines the price of the securities, taking into account supply and demand. The final stage is the placement of shares. From that moment on, they can be bought and sold by any investor./pp img width=669 src=/upload/medialibrary/4ae/4aefcfb411695b19c5a9f60369ff4d0c.jpg height=445 title=фридом alt=фридомbr/pp/pp bWhy investors are keen to participate in initial public offerings /b/p b /bp b /b/p b /bp

Because an IPO gives a company the status of a public company, which means that it must disclose financial indicators, meet strict regulatory requirements and market conditions. In addition, it is responsible to the new shareholders and must take their opinion into account when making decisions./pp

Such changes create difficulties for the issuer itself, but provide certain benefits to the investor, as the company becomes more competitive, reliable and open. After the IPO, the shareholder can analyse business processes, monitor quotes and learn from experts.nbsp;/pp

Issuers and underwriters make careful calculations to avoid, at the very least, a stock drop on the first day of the offering. In addition, it is in their interests to underprice the securities to attract as many buyers as possible. If the demand turns out to be great, the quotations start to grow immediately after entering the market. Accordingly, the investor can get profit./pp

The larger the volume of placement, the lower the risk. However, the probability that the price will fall below the initial price also remains. Therefore, a small portion of funds should be allocated for investing in IPOs./pp/pp bHow to buy shares during the IPO period and what to pay attention to /b/p b /bp

Usually large financial organisations have priority right to buy securities. A private investor can also participate in the IPO by submitting an application through a broker, specifying the price range and number of shares./pp

One of the most convenient ways for a private investor to buy shares at the IPO is to invest in specialised ETFs - exchange-traded funds that buy securities of multiple companies. This reduces risk, eliminates the need to select an issuer and submit an application that may be unsuccessful. With this approach, it is important to invest time and effort in finding a profitable and reliable fund./pp

One way to profit from an IPO is to buy shares from other investors at the beginning of the trading day and sell them at the end when quotes rise. Such securities are more expensive, but the difference in value will compensate for the expenses and bring income. However, there is no guarantee that the quotations will rise.nbsp;nbsp;/pp

When deciding to buy shares at the IPO stage, carefully analyse the company's financials. One of the key ones is P/E. This is the ratio of the company's value to its annual earnings. The lower the P/E, the fewer years it will take for the company to break even./pp

When choosing, pay attention to the status of the underwriter and favour issuers working with large, reliable intermediaries./pp

Examine the prospectus - a document describing the company's offer, status and plans. This will help you understand how the funds raised will be used: for developmentnbsp; or to repay debts. Investing in a company that is trying to ‘survive’ by going public is a risky move./pp img width=669 src=/upload/medialibrary/508/50861bb569f214402f8f8415596abb10.jpg height=445 title=фридом alt=фридомbr/pp bNuances and complexities /b/p b /bp

Buying shares in an initial public offering involves a rather high risk, as the fairness of the price has not yet been confirmed and quotations can be particularly volatile. The number of shares is limited, and a private investor may not receive them - at all or in the planned quantity./pp

A certain minimum amount must be paid in order to participate. In the early days of an IPO, share prices of leading companies can be very high and pre-market participation is essentially only available to financial organisations./pp

Often, qualified investor status is required to purchase securities in an IPO. This is only granted to market participants with professional knowledge and experience in the environment. The criteria to be met by a qualified investor are determined by the country's legislation. Usually, they include a minimum threshold of completed transactions and shares in the portfolio, the requirement to have specialised education and work experience in financial institutions./pp

Companies may introduce a lock-up rule that prevents the sale of securities bought at an IPO for several months. This is necessary to avoid a collapse in stock prices. Often the lock-up applies to management, employees with insider information and the largest shareholders. However, private investors should also carefully consider the terms of participation in an IPO./pp bIt is important to knownbsp; /b/p

Analysing the IPO process shows that buying securities on the first day of the offering can bring benefits to shareholders in the form of profits and privileges. However, a private investor should very carefully assess the feasibility of such a step, focusing on their own resources, possible difficulties and risks.nbsp;nbsp;br br iThis article was prepared within the framework of the joint project ‘The Year of Investing in Oneself’ by ARKA, AMI Novosti-Armenia news agencies andnbsp;/ia href=http://ffin.am/en/iFreedom Broker Armenia/i/ai. /ip i /i/p i /ibr br