3 Reasons to trade IPOs

By: Miguel A. Rodriguez

08:20, 12 February 2021

This article will tackle the advantages of trading IPOs.

An IPO (Initial Public Offering) occurs when a company goes public, offering its shares on the stock market, where people and institutions can trade them. Companies use IPOs to increase their exposure, raise funds, and expand their businesses.

For traders, #IPOs could represent a terrific opportunity, since it can be a lot easier to invest in publicly traded shares than in private ones, especially when the market buzz is up the roof. But there are more advantages to #trading IPOs.

Let us take a closer look at three reasons why you should consider trading them.

1. The injection of funds signals growth. And where there’s growth, there is also potential for opportunity.

For any company, raising capital is critical. However, in many cases, raising funds can be a challenging task because it can heavily depend on venture capitalists and investors.

In case of an IPO, the public (including you) acts as a mass of investors helping generate capital faster and easier. This raises funds for supplying working capital and various activities such as mergers, acquisitions, and research and development, eventually leading to the expansion of the company. In conclusion, the money provided by an IPO can be significant and can transform the growth trajectory of a company.

Perhaps you are wondering how all these things can help you. The answer is straightforward: the more a company benefits from an improved market outlook, the more profitable it can be for you to invest in it.

2. Public listings attract investors, expands horizons.

Once a company hits a stock exchange trading level, its public image and general market perceptions might improve, attracting investors who might be more willing to invest in a publicly listed company. Additionally, a liquid market is created for the shares, and the market participants can reap the benefits. As an example, for all the above, we can look at companies such as Snowflake, DoorDash or Airbnb, which have seen their stocks surge following their successful IPOs last year.

Once a company is public, it has the option of raising more capital through subsequent offerings on the stock exchange, which can be easier than generating funds through a private funding round.

An IPO could be a possible good chance for wealth creation for all parties involved if it is well-timed and well prepared. To enhance your trading capabilities, check out CAPEX Academy, your go-to place for improving your financial markets knowledge!

3. IPOs can generate publicity and credibility.

Companies require increased exposure to potential customers who know about it and trust its products, and IPOs can provide it.

Analysts worldwide report on the most critical initial public offerings to keep their customers informed, while news agencies and websites expand on it.

Not only do companies receive a great deal of attention when they decide to go public, but they also usually receive credibility. To complete an offering, a company is thoroughly checked by regulators. This scrutiny, combined with many individuals' tendencies to trust public companies more, can increase credibility for a company and its products.

All this market exposure can generate significant interest in an IPO listing, leading to intense trading activity shortly after the company gets listed.

To learn more about the latest IPO stories, as well as upcoming stocks going public, make sure you stay tuned to CAPEX.com!

Sources: investopedia.com, thebalance.com.

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