From Facebook to Fitbit, many novice investors get excited about the opportunity to invest in companies they know and love. But is that upcoming IPO good for your money? Here’s how to find out. What is an IPO? Private companies looking to expand their business can raise cash quickly by selling stock to the general public. The transition from privately held to publicly traded takes place with an initial public offering, commonly abbreviated to IPO. Publicly traded companies come under more scrutiny, but the access to cash is usually worth it. For investors, the potential that the company, as well as the stock price, will increase in value is the reason to become a shareholder. Before making a trade, find out what you’re buying. You might think you’re buying the IPO, but only certain investors have access to that initial price. More likely you’re buying the stock on the first day it trades on the stock exchange. Prices tend to be inflated on the first day, especially with familiar consumer companies that generate more demand. Do your homework before making a trade, read the company's prospectus to get a clear picture of how the business is doing, and why they decided to go public.
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