Editorial
On the first trading day, buying pours in and the price runs far above the offer price. A learning case on not chasing a first-day price set by supply and demand.
*This is a learning case built from a general situation. It is not about any specific company, real event or personal experience, and all numbers are hypothetical.
The situation
Buy orders have piled into a newly listed stock (an IPO) from the first day of trading. It looks set to open far above the offer price.
What stands out
The offer price is set before listing. After listing, the price is set by supply and demand between buyers and sellers. Suppose the offer price is 1,000 yen and the first trade is at 2,000 yen. If you buy there and the price later falls to 1,200 yen, that is a 40% fall from your purchase price. The first price can also come in below the offer price.
Why one might pass
While the price is lifted by the buzz around the listing, it may reflect popularity more than the value of the company. A newly listed company also has limited public information. Not buying while popularity runs ahead is a reasonable decision.
What this case shows
- The offer price and the price after listing are set in different ways.
- Prices tend to swing widely on the first day.
- Check the company’s business and finances in the published documents.
This is a learning case and not a recommendation of any stock or investment. How prices move after passing cannot be known in advance.