In the IPO issue, listing gains are the profits that you get just after the shares are listed on the stock market. Traders who are only interested in short-term gains sell the stocks on or near after listing date.
How does it work?
To know how does it all work first understand the process of how an IPO is issued and gets listed on stock market.
- The application starts: Interested company starts the entry for interested users.
- The application ends: Usually in 2 days company has to end the application.
- Allotment begins (to the accepted subscribers): Based on the nature of the application company decides to offer stocks to limited numbers of applicants. It will be a completely random action, not the first-come, first-served.
- Refund initiation (to the rejected subscribers): Whoever is not selected will be refunded asap.
- Allotment date: The shares will be allotted to the subscribed and selected users.
- Listing on exchange: Finally, the stock gets listed, and whoever has been allotted the shares will receive it in their respected trading account from which they have applied.
What does listing gain mean?
Listing means that the shares have been allotted as per the IPO allotment schedule and now investors will be able to buy and sell these shares on stock exchanges. On the listing date, if prices are higher and you square off the shares it will be called as listing gains. Let’s understand listing gain with an example.
ABC Limited company decides to launch an IPO, they did on first day of January. The company will start accepting applications for 2-3 days, whoever are interested in the company will invest in it.
Here either stock under-subscribed or over-subscribed. If oversubscribed means there is a huge chance that on a listing day the price will jump up. You can check out the gray market rates from there you can understand.
Note that under-subscribed IPOs has a very low chance to get any listing gains so be careful about it.
How listing gain is calculated?
It is decided base on the market sentiments + competitors price of the stock + demand and supply of the stock that is buyers and seller situation in the market. The listing price of the IPO is decided by the syndicate of the investment banks performing the IPO through a process called book building.