What Does Flipping Mean in an IPO

The concept of flipping has long been in existence in investment and financial markets. Typically, flipping represents the fact that investors buy an asset having a short holding time. The intention of this action is to sell the asset and make a quick profit. There is no long-term appreciation gauged for assets, so this may work for some investors and particular investments. In the field of initial public offerings, or IPOs, flipping an IPO is a term that is often employed to describe actions by some investors.

What is flipping?

The common use cases of flipping occur in the arena of finance. However, flipping is a general term that can be applied to any scenario in which an asset is bought only to be sold in the short term, with a view to turning a profit. Consequently, this is applicable to the purchase of stocks (after you open a demat account and store them for a short while), cryptocurrency, commodities, real estate, IPOs, etc. The most popular use of flipping is seen in the area of IPO investment and real estate purchase. Nonetheless, this is a practice that can be risky in cases where there is no scope to get a profit in the short run. 

Flipping an IPO

When you speak about flipping, in terms of an IPO, or any upcoming IPO you have plans to invest in, an investor will resell stocks in the very first weeks, or even days, after the IPO has been listed. The investors who adopt this strategy to make money benefit from the “IPO pop” which hot IPOs are touted to have in the early days of their listings. In the true sense of investment, flipping is not undertaken by serious investors who look at profitability with solid stocks in the long run. 

Is IPO flipping recommended?

Initial Public Offering, or IPO, flipping is not encouraged for investors just beginning their investment journey. There are rules in terms of lockups and other guidelines to be followed. Novices may not fully understand these. However, any new IPOs should ideally have a degree of flipping action as this serves to create substantial trading volume. In turn, this creates a buzz in the markets, required by new companies to draw in more investors. 

Flipping in an IPO also makes a lot of sense, financially, as there are many stocks and shares that experience peak prices in the initial weeks or months once IPOs have become listed companies. After the peaks have been reached, stocks may go on a downward trend, and this may last for a while

Flip with Caution

If you want to be a flipper, tempted with short-term gains, you should make sure that the upcoming IPO you are investing in holds the promise of being profitable in the near term after the company that it represents gets listed. Otherwise, flipping an IPO won’t work for you. You can also open a demat account, and try flipping with a few good stocks first. Beginners should gain some experience in the markets and study new companies' backgrounds before any flipping activity. 

Source: www.motilaloswal.com