What is an IPO Lockup Period?

The Ultimate Guide To IPO Lockup Periods

An IPO is one of the most exciting events in the life of a growing company. It can also be an exciting event for traders. Not only does an IPO introduce a new stock to the public markets, but it also brings with it an IPO lockup period that can present opportunities for trading.

In this guide, we’ll explain what an IPO lockup period is and how you can trade around it.

What is an IPO?

An IPO, or initial public offering, is the process by which a private company sells shares on public stock markets for the first time. Before an IPO, ownership in a company is limited to a small group of insiders, venture capitalists, and other professional investors. After an IPO, ownership is available to any investor through public stock exchanges.

How an IPO Works

During an IPO, a company issues new shares that will be sold to raise capital. These shares are typically sold to an investment bank at a predetermined price. This process is known as underwriting, since the investment bank puts up the money to buy the shares upfront, thus guaranteeing the company going public a certain amount of capital. The investment bank then sells the shares on a stock exchange at the time of the IPO.

What is an IPO Lockup Period?

On the day of an IPO, all or nearly all of the shares available to the public are newly issued shares. In most cases, existing shareholders – venture capitalists, company insiders, and employees – are restricted from selling their shares (or face limits on the number of shares they can sell).

These restrictions are part of what’s known as the IPO lockup period. During the IPO lockup period, insiders are barred from selling their shares. Shares that were released to the public on the day of the IPO can trade freely, but insiders cannot sell into the public markets.

IPO Locked Shares

The IPO lockup period is designed to prevent insiders from selling huge numbers of shares during or immediately after an IPO. Such selling could flood the market with shares, driving down their price. Notably, an IPO lockup period is not required by the SEC (Securities and Exchange Commission), but rather is imposed by the company itself or by the investment bank that underwrites the IPO.

How Long is the IPO Lockup Period?

An IPO lockup period typically lasts 90-180 days. There is no standardized length of time.

Traders and investors can find out how long a company’s IPO lockup period will be in its S-1 filing, which is the same filing that describes the IPO and share offering. Any changes to the lockup period will be documented in an S-1A filing.

What Happens After the IPO Lockup Period?

Once the IPO lockup period ends, insiders are allowed to sell their shares with few or no restrictions. Typically, this leads to a wave of selling activity – at the end of an IPO lockup period, most stocks experience a prolonged price drop of 1-3%.

However, the magnitude of selling pressure at the end of the IPO lockup period varies from company to company. If the stock price is lower than the IPO price due to negative news around the company, insiders may be incentivized to hold onto their shares and sell at a later date. If the stock price is high, insiders may be impatient to sell.

IPO Lockup Period

How eager insiders are to sell also depends on how long the company took to reach an IPO from when it was founded, what portion of shares are held by founders versus venture capitalists, and other factors.

Trading around the End of an IPO Lockup Period

Trading around the end of an IPO lockup period can be tricky since it’s difficult to know how eager insiders will be to sell. Shorting the stock might seem like an obvious strategy, but it’s important to remember that the market expects selling pressure at the end of a company’s IPO lockup period. So, the price can drop in the days leading up to the lockup expiration.

To get an indication of where a stock might be headed after an IPO lockup expires, look carefully at which insiders are selling and how much of their holdings they are selling. If institutional investors are selling large tranches of stock, it could be a sign that they don’t have much faith in the company going forward.

On the other hand, if selling is mainly coming from the founding team or early investors, these sales could simply represent individuals looking to cash out after years of holding wealth on paper only. This type of selling doesn’t necessarily reflect anxiety about the company’s future.


An IPO lockup period is the period following an IPO when insiders are restricted from selling their shares. After an IPO lockup ends, insiders are allowed to sell, and they often do – which can drive down the price of a stock by several percent.

Traders can use the end of an IPO lockup period as a trading opportunity. However, it’s important to remember that the market often prices in selling activity around this event.

The information contained herein is intended as informational only and should not be considered as a recommendation of any sort. Every trader has a different risk tolerance and you should consider your own tolerance and financial situation before engaging in day trading. Day trading can result in a total loss of capital. Short selling and margin trading can significantly increase your risk and even result in debt owed to your broker. Please review our day trading risk disclosuremargin disclosure, and trading fees for more information on the risks and fees associated with trading.

Related Content

Market Makers vs. ECNs

Market Makers vs. ECNs

Introduction When you place an order to trade stocks, there are typically two ways in which it can be processed: by a market maker or by an electronic communications network (ECN). Market makers and ECNs are critical for keeping the market running smoothly and play...

Inverse Head and Shoulders Pattern: The Complete Guide

In this article, we'll be detailing the inverse version of the well-known head and shoulders chart pattern so you can start effectively incorporating it into your trading. An inverse head and shoulders pattern is a technical analysis pattern that signals a potential...

Float Rotation – What It Is and Why it Matters

Float Rotation – What It Is and Why it Matters

Float rotation describes the number of times that a stock’s floating shares turn over in a single trading day. For day traders who focus on low-float stocks, float rotation is an important factor to watch when volatility spikes. In this guide, we’ll explain what float...

Level 1 vs. Level 2 Market Data

Level 1 vs. Level 2 Market Data

Successful trading relies on having good information about the market for a stock. Price information is often visualized through technical charts, but traders can also benefit from data about the outstanding orders for a stock. This type of data is known as Level 1...

What is a Shelf Offering?

What is a Shelf Offering?

Have you ever seen a stock exhibiting normal trading behavior and then all of a sudden the stock price drastically drops out of nowhere? This type of price action could be related to the announcement of a shelf offering or the execution of an “at-the-market” sale from...

How to Recognize a Short Squeeze

How to Recognize a Short Squeeze

Short squeezes can introduce a lot of volatility into stocks and send share prices sharply higher. These squeezes offer opportunities for trading, but they often require different strategies and more caution than traditional breakouts. In this article, we’ll take a...