Fool's School

The Fool's Guide to Flotations

7. What happens after a flotation?

The first few days of trading tend to be a bit hectic. There are usually large volumes of shares traded and this can result in the price being very volatile. In order to smooth out fluctuations the Sponsor may arrange for a period of stabilisation for a set period after the flotation. All this means is that they are also buying and selling in the market in order to smooth out price fluctuations.

Unfortunately this can create a misleading impression. Although the price may be steady this may hide the true picture. If this is the case then you may see an ungainly lurch in the share price once this stabilisation period ends.

Well that about wraps it up. Investing in new issues can add some spice to your portfolio but don't forget this can be a very risky area of the stock market.

Related Links
• The Flotation Tank: a Foolish information centre for flotations
• New Issues discussion board
• Internet Flotations discussion board
• Frequently Asked Questions, including links to useful sites
• How to Read an Annual Report in 5 Minutes