What is an IPO and How to Participate in an IPO?

An Initial Public Offering (IPO) is the process by which a private company opens its shares to the public to be traded on the stock exchange for the first time. During this process, companies collect funds through capital increases or the sale of existing shareholders' shares. The funds obtained are generally used to finance new investments, pay debts, or strengthen working capital. BIST100 and Borsa Istanbul in general have been known in recent years for the intense interest shown in IPOs. Millions of new investors have met the stock market through IPOs and started investing with small budgets.

Participating in IPOs is quite simple, but it is necessary to know some rules. First of all, you must have an investment account at a CMB-licensed brokerage house or bank. When IPO dates are announced, you can create a demand by entering the IPO menu through your broker's mobile application or internet banking. Demands are usually collected in two ways: 'Equal Distribution' and 'Proportional Distribution'. Almost all of the recent IPOs are made with the method of fully equal distribution to individual investors to protect investor rights. In equal distribution, an equal amount of shares is distributed to all participating investors.

One of the most important issues to pay attention to when submitting a demand for an IPO is the payment method. While some IPOs only accept cash participation, others allow participation by showing stock, fund, or foreign currency collateral. In addition, the hours during which the demand can be entered are specified in the IPO prospectus. Generally, demands can be entered between 09:00 in the morning and 17:00 in the afternoon. Investors need to follow updated calendars so as not to miss the demand collection dates.

The performance of IPO'd companies after they start trading on the stock exchange can vary. In recent years, many IPO shares have been seen to make 'ceiling series' (daily maximum limit of +10% price increase) for days after entering the stock market. However, this is not guaranteed for every company. The financial structure of the company, the place of fund utilization in the prospectus, the IPO size, and market conditions directly affect the performance of the stock. Therefore, instead of blindly participating in every IPO, it is necessary to read the analysis reports of the company.

Through our Sermaye Borsasi Telegram channel and depth bot, we share detailed analyses of all approved IPOs, their places of fund utilization, commitments, and our estimates of how many lots may fall. IPOs are a low-risk and educational gateway to start stock market investing. However, when creating a long-term portfolio, one should not depend solely on IPO shares, but also include strong and established companies of BIST100. As Sermaye Borsasi, we support conscious participation.