An Initial Public Offering (IPO) is the first time a company sells its stock to the public on a stock exchange. Besides being the first chance to own a cutting edge company, it can be exciting because there can be large price swings IPOs generate and can involve leading-edge companies. They can also be profitable for the issuing companies, investment banks and skilled traders. Long-term investors may not fare as well.
IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.
In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.