Eating Stock

AAA

DEFINITION of 'Eating Stock'

The forced purchase of a security when there are insufficient buyers. Eating stock often applies to underwriters of an initial public offering (IPO), if a certain level of subscription is guaranteed but is not met. This allows the company going public to have a better approximation for the amount of capital it will raise from the offering.

INVESTOPEDIA EXPLAINS 'Eating Stock'

Underwriters mitigate the risk associated with eating stock, in IPOs that it offers, by charging a substantial underwriting fee. Eating stock does not mean that the underwriter will take a loss on the entire venture, as the underwriting fee may exceed the cost of shares that it was forced to absorb.

RELATED TERMS
  1. Red Herring

    A preliminary prospectus filed by a company with the Securities ...
  2. Stock

    A type of security that signifies ownership in a corporation ...
  3. Prospectus

    A formal legal document, which is required by and filed with ...
  4. Direct Public Offering - DPO

    When a company raises capital by marketing its shares directly ...
  5. Gross Spread

    The difference between the underwriting price received by the ...
  6. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
Related Articles
  1. Investing Basics

    Stock Basics Tutorial

    If you're new to the stock market and want the basics, this is the tutorial for you!
  2. Investing

    How An IPO Is Valued

    The initial valuation of an IPO can determine the success or failure of a specific stock - but how is that price determined?
  3. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  4. Investing Basics

    What is the difference between an IPO and a seasoned issue?

    Learn how companies issue IPO securities when they first go public and seasoned issue shares if they sell more shares in the secondary market.
  5. Investing Basics

    What is the difference between a company's outstanding shares and its float?

    Understanding share counts, including outstanding shares relative to float, is an integral part of determining whether or not to invest in a particular company.
  6. Investing Basics

    What is the difference between authorized shares and outstanding shares?

    Calculating financial ratios can help investors understand a company's financial position, but only when a knowledge of various terms is at the foundation.
  7. Investing

    Top 10 Largest Global IPOs Of All Time

    We have compiled a list of the top 10 largest IPOs of all time. The results may surprise you.
  8. Mutual Funds & ETFs

    Are there publicly traded hedge funds?

    See why a privately arranged hedge fund may decide to take its fund public, and how the investing public at large can gain exposure to hedge fund value.
  9. Investing Basics

    How Does Alibaba Make Money? A Simple Guide

    Alibaba broke IPO headlines--but making news and making money are two different things.
  10. Investing News

    5 IPOs That Broke The Markets In 2014

    In 2014, stock markets traded at record levels and the US IPO market enjoyed activity not seen since the 2000 tech bubble. Here is a snapshot of some of the year’s most successful IPOs.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center