The IPO or initial public offering is a company's first stock sale to the public. Like any investing buying into an IPO carries a risk and a reward. Which side you end on is determined by your understanding of how the stock market works and what you action you take based upon your analysis and thinking.
In order to purchase stock at or near the base price you need to subscribe to the IPO through your broker, if you meet certain conditions. Then the stock can be purchased the day of the IPO at a favorable price before the stock price goes up. Once the stock "goes public" and the price starts to climb as the buyers pile in en masse, the public will get their orders filled at much higher prices. After all they are "retail" stock traders. The price typically goes up 20-30% and higher the first day of trading. In most cases the price starts to move sideways in the coming days and starts a slow and frustrating decline. What goes up must come down.
The owners of the company, officers, and anyone else who owns substantial shares of the stock all become rich the day the IPO is released. They are handsomely paid for their years of hard work, starting the company and staying with it through the growing pains. The unsuspecting public may be on a course to profit or a long road to recovery, depending upon what happens over the next months and years. Early investors typically do quite well for their part in the company.
Most retail investors expect to buy into the IPO and watch as their modest investment goes to the moon and makes them rich. What people expect usually doesn't happen, which is one of the frustrating things about investing. Even if the price rises right after the IPO greed takes over logical thinking and investors stay with the stock even if the price declines. As the price moves lower and lower they start to feel pressure and eventually they are forced to sell at a lower price. Eventually the price declines and institutional investors buy up every available share and the price rises substantially without the retail investor on board. They bought and sold too soon. They are victims of their own psychology and the manipulation that goes on everyday in financial markets. Understanding how these markets are structured is the key to profitability.