Initial public offering (IPO)

Definition

Initial public offering (IPO) in plain English

For most of a company's life, only its founders, employees, and a few private investors can own a piece of it, the public can't just buy shares. An IPO is the moment that changes: the company sells slices of ownership ("stock") to the general public for the very first time, usually to raise a big pile of cash to grow. It's like a popular local bakery that was family-owned finally opening up so anyone in town can buy a share and become a part-owner. After the IPO, the stock trades freely on an exchange and anyone can buy or sell it.

Related Principles of Finance terms

• Agency bond
• American option
• Arbitrage pricing theory (APT)
• Asset-backed security (ABS)
• Basis risk
• Bid-ask spread
• Bookrunner
• Carhart four-factor model
• Clientele effect
• Collateralized debt obligation (CDO)