How the IPO Price Can Make You a Winning Trader

In a previous post we discussed the importance of IPO pricing and why you should be considering it at the start of a contest. The reality of IPO pricing impacts much more than just the start of a market and should be considered at all times when making decisions to buy and sell shares.

The biggest impact IPO price has is to create a benchmark the shares all traders own. Remember, everyone is issued the same number of shares at the same price. This will have a dramatic impact when large game event occur because everyone will likely be trading the same way and its important to understand the moment of both an in game event and the market as a whole.

Example market open:

NYJ $41

NEP $59

Everyone owns 100 shares of the NYJ at $41 and the NEP at $59 when they enter the market.

How to use this information:

On the BallStreet game screen each player is looking at the “$ per share gain/loss” and this will drive decision making when traders are buying and selling shares. When the “$ per share gain/loss” is relatively flat ($0.00) we would expect limited buying and selling in the absence of a major in game event. The only price movements we would expect to see will be from those traders taking a risk position without any real game details. 

When prices move away from the IPO price, especially in the first half of a game, most traders will be willing to sell any profits they may have made if the game and market begin to turn in the other direction. This is key to understanding why selling pressure exists beyond what the in game event should produce. Early in a game we don’t expect prices to be very volatile so taking early profits with the expectation that there will be price swings could help build early profits and have more bank to trade later in the game when prices are much more sensitive.

The key skill when trading using the IPO as a benchmark is to identify the difference between price movement due to traders repositioning their portfolios after a small up or down trend or price action based on the actual in game events.

If you have been trading on BallStreet you have seen markets gap (a large price move) at key moments in the game. This usually occurs more towards the end of the game when the outcome becomes a bit more clear. This is a crucial moment in the game for several reasons and the IPO price plays an important role.

Many traders will be waiting to make a big trade until they have clarity around an outcome. Those traders who wait until later in the game are traders who own shares on or around the IPO price so this group of traders will likely be trading in a similar way with a lot of buying and selling power. It would make sense that these traders are all pushing shares to sell and buy at the same time in order to take a position in the game. Given that BallStreet contests pay out to the top 20% of all traders its crucial for traders to get into the trade they want before this gap happens if they are getting long or waiting until after it if they are going to make a play at the losing team.

Traders who wait and begin to take a risk position later in the game will put heavy buying and selling pressure driving the price and the “$ per share gain/loss” data on all trader game screens. This creates the trigger for more trading as other traders will need to trade out of their positions to defend against losses, buy more in hopes of getting value on the losing team or add to their existing position by buying more shares of the rising shares ahead of a major gap in price.

The biggest point to take from this post is simply to remember most traders will all own shares on or around the same price due to the IPO shares they were given when they entered. As the game progresses and the markets move the market will trade in bursts as traders will be making decisions at the same time. This creates opportunity for skilled traders to use the IPO price to identify when a team is overbought or oversold. These key moments in the game can be the difference between top 20% and not.