flipping

Flipping

Buying shares in an initial public offering (IPO), and then selling the shares immediately after the start of public trading to turn an immediate profit.

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flipping

The immediate selling of shares purchased in an initial public offering. Flipping is especially popular in a hot IPO market when newly issued shares can soar in price when they hit the secondary market. Investment banking firms underwriting new issues generally discourage flipping, in large part because it can depress a stock's price in the secondary market.

Case Study In late 2001 UBS PaineWebber issued a memo to its branch offices that the firm intended to fine its brokers whose customers engaged in flipping shares purchased in initial public offerings underwritten by the firm. According to the policy, brokers would be required to pay a fine equal to 200% of their original commission. Following complaints from the firm's brokers, PaineWebber withdrew the proposal but indicated it would monitor the investment activity of clients who participated in new issues and adjust future allocations of shares in subsequent IPOs. Investment banking firms dislike flipping because it tends to destabilize trading and depress the stock's price, both of which are likely to anger management of the issuing company.

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flipping

1. The act or practice of buying IPOs only to resell them at a substantial profit very quickly. Flipping is a short-term investment strategy that operates on the assumption or existence of liquid markets. Institutional investors engage in flipping at a greater rate than individual investors as they have the most shares available to them at the offer price. Flipping, when done over and over by a large number of investors, can lead to a speculative bubble. See also: Stock jobbing.

2. The act or practice of buying real estate at a low or moderate price with the intent to resell it for a profit in a short amount of time. Flipping takes two main forms. One may buy several properties, intending to sell them in only a few months hoping that that price goes up. This is most common in areas expected to become big developments. On the other hand, one may buy a single property often with improvements already on it and renovate it with the intention to sell it for a much higher price.