What is the Difference Between IPO and Share?
- 01 Mar 2024
- By: BlinkX Research Team
The stock market can be challenging for beginners, but understanding key terms can help them navigate the market. One common confusion is the difference between Initial Public Offerings (IPOs) and regular stock investments (FPOs). IPOs refer to the first time a privately-owned venture lists its shares for public sale, while FPOs involve the issue of fresh shares by a company already listed on the stock exchange. Understanding these terms can help budding investors navigate the market effectively. Let’s understand the difference between IPO and share in detail.
What is an IPO?
An IPO is the initial public offering of a company's shares. Previously, the company's shares were owned privately by its founders, investors, and workers. When a corporation goes public, it raises capital by selling stock to investors. The sale revenues are returned to the firm, which can then utilise the funds to expand operations, pay down debt, or make acquisitions.
Table of Content
- What is an IPO?
- What is Regular Share?
- Difference Between IPO and Share
What is Regular Share?
Regular stock investments are the purchase of equities in publicly listed firms. These equities are traded on the stock exchange, and their prices vary according to supply and demand. Regular stock investments can be done using an internet broker, such as BlinkX trading app.
Difference Between IPO and Share
Here are the difference between IPO and share:
| Point | Primary Market (IPO) | Secondary Market |
| Nature of Market | Marketplace for newly issued shares (IPOs and FPOs) | Market for already issued securities (stocks, debentures, warrants, futures, options, ETFs, closed-ended funds, etc.) |
| Transaction Type | Direct purchase from the issuer in the primary market | Broker intermediary facilitates buying and settling of trades in the secondary market |
| Buyer-Seller Relationship | Direct relationship between the company (seller) and the investor (buyer) | Anonymous buying and selling with no direct knowledge of counterparty in the secondary market; shares allotted on price-time priority |
| IPO Pricing | Fixed-price IPOs or book-built IPOs with a price range; Once discovered, the price is standard for all investors | Prices in secondary markets fluctuate second by second based on news, demand, supply, charts, etc. |
| Impact on Company | Purchase in primary market impacts the company directly through a fresh issue or offloading by early investors | Company or promoters are not directly impacted by price movements in the secondary market |
| Dependency and Relationship | Dependent yet distinct markets; IPOs contribute to the creation of a broader secondary market | A robust secondary market is essential for IPO success; IPOs contribute to the vibrancy and wider participation in the secondary market |
Conclusion
Overall, both the difference between IPO and share transactions offer advantages and downsides. IPOs can provide large potential profits, but they also carry more risk and cost. Regular stock investments, on the other hand, are often regarded as less risky and more accessible to individual investors. Finally, the decision between IPOs and regular stock investments is based on an investor's risk tolerance, investment objectives, and financial means in a reliable stock market app.
