sale to the public. Following an IPO, a company ceases to be a private enterprise, or in the

case of privatisation, a government-owned utility. It becomes publicly listed and its

shares are traded on a stock exchange. Facebook and Twitter have held two high profile IPOs

in recent years. But flotations like this come in all shapes and sizes. So why would

a private company choose to go public? Primarily, it's about generating capital. If a company

needs funds to invest in its expansion, it could either borrow the money or sell shares

via an IPO. An IPO has the added benefit of generating publicity for the company, boosting

its reputation as a successful, established business. So what does this mean for traders?

Well IPOs often see a flurry of activity as investors buy or sell new stock they believe

to be under or over valued. This can create volatility, which while risky, can mean opportunities

to trade. One way to take a position before the IPO is by trading on a grey market. For

example, you might open a CFD that settles on the size of the company's market capitalisation

following the first day of trading. Grey markets can also gauge trader sentiment in the run

up to the IPO. And of course, after the IPO you can trade the shares just like any other

listed company. As ever though, it's important you do your research and keep up to speed

with all the breaking news. Because the better you understand the company, its sector and

the circumstances surrounding the IPO, the better you can assess how accurately the stock

is valued, and the level of risk involved.