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What Happens on The Day of an IPO?

On the day of an IPO, you can start speculating on the share price of a company that has just become publicly listed. Learn more about IPOs, what happens on the day of listing and how you can trade IPOs with us.

ipo Source: Bloomberg

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What is an IPO?

An initial public offering (IPO) is when a private company sells its shares to the public for the first time. This allows the company to gain access to investor capital in a less complex way.

While an IPO is often the first time shares have ever been made available to the public, it's also possible for companies to dual-list – or de-list and re-list – by launching an IPO.

The shift from private to public is often an important time for private investors as it usually comes with a share price premium and increased liquidity to offload shares. However, pre-IPO investors are often contractually sealed into a lock-up period, whereby they cannot sell any shares for a certain length of time after the company lists.¹

Companies seeking to launch an IPO must meet the regulatory requirements imposed by regulatory bodies.

As part of the pre-launch process, businesses almost always hire an investment bank to do some of the heavy lifting, such as marketing and gauging demand to help set the date of launch and initial price.

What happens on the day of an IPO?

An IPO day occurs over two defined stages.

1. The primary market

In the primary market, investors who have subscribed to an IPO or registered their interest in the listing receive their allotment of shares before the market opens. The process takes place between the company and these investors through an underwriter – typically a bank.

You can't trade IPOs on the primary market with us. Instead, you can trade them on the secondary market using contracts for difference (CFD).

2. The secondary market

Excepting the US, after the primary market concludes – and usually on the same day – shares start trading on the open market. At this point, shares can be bought and sold freely by members of the public through their stockbroker. Most international shares are available with us to trade immediately.

As always with the stock market, there’s a special case to consider. From the first day of the IPO, some companies' shares enter a phase that typically lasts three days. This is known as conditional trading. During this stage, all share purchases have deferred settlement, meaning there’s no guarantee that a trade that you place will be filled. Once unconditional trading starts, shares can then be traded freely.

What is an IPO price?

The IPO price is the value that the company and its underwriter set for the stock to begin trading on the open market. A common misconception is that this figure must match the target price given in the IPO prospectus, but this isn’t the case.

If the starting price is set higher than the previously given target price, it may be that interest in the stock has surged and the company thinks it can make more money. This is common when smaller companies conduct an IPO, as it sometimes takes the publicity of a listing for analysts to give their opinions.

Factors that influence the final IPO price include demand, industry comparables, growth prospects, finances and even unique selling points. A good example of a strong launch is Alibaba's 2014 IPO. This IPO shattered all previous records due to aspects such as in-demand diversified technology, an announcement to tap into European and US markets (in addition to China) and the choice to debut on the New York Stock Exchange (NYSE).

However, just like pricing any other asset, setting too high a price can have unfavourable outcomes. Accordingly, many companies choose to slightly underprice their initial shares, as this can tempt investors to the primary market.

IPOs can be stopped from making it to market. An example of this is when Ant Group’s IPO – valuing the company at $313.37 billion on the Shanghai and Hong Kong stock exchanges – was halted by the Chinese government the day before its planned listing.

What time do IPOs start trading?

IPOs will start trading at varying times, depending on the stock exchange in which the listing is taking place.

As a general rule, UK stocks should become available to retail traders at 8am and US stocks at 2.30pm (UK time). However, ubiquitous red tape means that US stocks are often delayed.

Stocks listing on the London Stock Exchange (LSE) usually reveal their IPO price at 7am (UK time). Timings vary by country – for example, India IPO securities typically begin trading at 10am (Indian Standard Time).

Investors can only access the IPO price in the primary market. We offer immediate access to the secondary market for most IPOs across the UK, Europe and Asia. Access to US IPO secondary markets can take several hours, though this is a by-system design for brokers like us.

Key market IPO launch times (local time)

Stock exchange

IPO start time

LSE (UK)

8am

NYSE (US)

10am, but may take some hours to be tradeable

NASDAQ (US)

10am, but may take some hours to be tradeable

Tokyo Stock Exchange (Japan)

9am

Frankfurt Stock Exchange (Germany)

8am

Euronext Paris (France)

9am

Some of these times are subject to daylight saving time clock changes.

How to trade IPOs with us

  1. Do research on IPO trading
  2. Create a CFD trading account with us
  3. Find an opportunity to speculate on a post-IPO share price
  4. Place your trade

Remember, like with all trading activity, it’s important to manage your risk when using CFDs to trade. They come with added complexity and risk attached to leverage. Your position will be opened at a fraction of the value of the total position size – meaning you can gain or lose money much faster than you might expect. You could even lose more than your initial deposit. Both potential profits and losses are magnified to the full value of the trade.

Advantages and disadvantages of IPOs

Advantages of an IPO

  • Access to more capital through the wider investing public
  • Increased exposure, public image and prestige
  • Increased transparency from quarterly reporting
  • Often better borrowing terms from creditors
  • Ability to raise additional funds through secondary offering

Disadvantages of an IPO

  • IPOs are costly
  • Maintaining a public company comes with additional expenses
  • Share prices sometimes don’t reflect the true value of the company
  • Listed companies must disclose business information that may help competitors
  • Loss of agency can occurs as new shareholders gain rights

History of IPOs in summary

The first modern IPO was launched by the Dutch when shares of the Dutch East India Company were offered to the public in 1602. Over the years, IPOs have faded in and out of popularity, with periods of intense activity usually coinciding with technological innovation or loose monetary policy.2

For example, the dot-com bubble saw high levels of IPO activity as tech start-ups rushed to get liquidity, while the 2008 financial crisis saw listings drop to a record low and remained rare for some years.

Activity started to increase with the loose monetary and fiscal policies of the Covid-19 pandemic years, with investors focused on unicorns, companies with a valuation of $1 billion or more.

What happens on the day of an IPO summed up

  • An initial public offering (IPO) is a stock market process by which a private company begins offering shares to the public on a listed exchange in a new issuance for the first time
  • An IPO day occurs over two defined stages – the primary market and the secondary market
  • Traders can speculate on the price movement of IPO shares through the secondary market – we offer secondary market access to most IPOs
  • The IPO price is the value that the company and its underwriter set for the stock to begin trading on the open market
  • Companies benefit from access to more capital and public exposure, but must weigh these against increased costs and some loss of agency

1 Barclays Smart Investor, 2024
2 PwC, 2024

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Get in on the action early

Everything you need to trade a company’s initial public offering (IPO), all in one place.

  • Explore IPOs, learn expected valuations and see company profiles
  • Speculate on a company’s market cap before its IPO with our grey markets
  • Invest with a share dealing account, or trade on price movements with spread bets and CFDs

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