IPO Investing & Trading Basics
Initial public offerings or IPOs are considered risky trading opportunities; often investors are advised to stay away from them until the price stabilizes and the growth potential of the company is revealed.
Perhaps the best strategies to profit from IPO shares is the 'buy early and sell early' strategy for short-term traders, and 'establishing target prices for enter and exit' for long-term traders. Investing only in known growing companies with strong fundamentals is also a good strategy.
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- Statistics shows that most IPOs fail. After a year or so the prices can be far less than the debut price.
- Most IPO stocks are of small companies. Although some of them have high growth potential, most of them just want to raise some money from the public and they fail to achieve their goals.
- There are many non-market forces which can control the price changes—high selling activity from large shareholders just after the lockup period or very active short-covering by traders because of short-interest in IPOs.
- The market forces never stay the same. The economy is always changing and new market forces can increase or decrease the prices of shares.
- Underperforming companies are common. Poor management, economic changes and/or local or international changes can affect a company’s performance; many IPO companies poorly utilize the money they lease from the public.
- The illiquidity on early days can make the market timing more difficult. Moreover, it can be hard to borrow stocks from big shareholders for shorting them.
Perhaps the best strategies to profit from IPO shares is the 'buy early and sell early' strategy for short-term traders, and 'establishing target prices for enter and exit' for long-term traders. Investing only in known growing companies with strong fundamentals is also a good strategy.
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Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by NobleTrading at
9:19 AM
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