What is a Hot IPO?

A hot IPO is an IPO for which there is great demand.

How Does a Hot IPO Work?

For example, let's say Company XYZ invents a cure for cancer and patents the invention. The company can change the world and make its owners fabulously wealthy, so investors are drooling over the company's upcoming $900 million IPO. They are calling every broker trying to get their hands on some shares. This is a hot IPO.

Why Does a Hot IPO Matter?

Hot IPOs get a lot of anticipatory press, a lot of interest from investors, and a lot of media coverage. They also tend to 'explode' on their first day of trading and can influence the rest of the market.

It is important to note, however, that plenty of hot IPOs have become poorly performing stocks.