What is "IPO" Trading ?
IPO (Initial Public Offering).
When an unlisted private company wants to go public by issuing shares and raising capital from the equity market then the company approaches Investment bankers/ Merchant bankers.
All the technicalities of the issue are covered in the "Red herring prospectus".
The maximum Retail investor participation is 35 %.
In general 1 application size is 14000-16000 rupees and the amount gets blocked from your bank till the allotment is done.
The amount is debited only if a person gets the allotment or else the funds are released and reflect in the bank account again.
There is a "Floor price" & a "Ceiling price" to every issue.
The price is decided through the "Book building process" which is just a fancy term to check the Demand & Supply condition of the issue.
If the demand is high then the issue price will drift towards the Ceiling price & if the demand is low then the issue price will drift towards the floor price.
When the Security is listed on the Stock Exchange, existing shareholders can take an "Exit" as the "Secondary market" increases the trading activity.
What is IPO Trading ?
Generally one should only apply for an IPO if the fundamentals of the company are strong.
Apart from doing Fundamental analysis one should also check the "Grey market premium/ discount".
One also needs to track the HNI (High net-worth individual subscription) & Institutional subscription before applying for an IPO.
"Grey market" is an Over the counter (OTC) market which is not regulated by the Stock exchange and speculators are active in this space as-well.
Based on the "Demand & Supply condition" you can track what is the "Grey market premium or discount" for any IPO.
If the "Grey market premium" is high then it usually means that people are betting that this IPO is more likely to list at a good premium.
When the security gets listed on the Stock exchange, one can sell his/her shares in order to make a decent percentage profit from that listing premium.
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