Is investment banks just arbitraging ?

Question

just buying large shares of the pre-ipo company, and selling the shares on stock exchange to suckers like me who buy them and them pocketing the money with brokers.

Answer 1

my ans 3

Answer 2

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Answer 3

yes with a small correction.

Yes, investment banks do *sometimes* buy stock before it reaches the public market in a hope that when it starts trading at an exchange the public will drive the price higher than the bank paid for the stock. Other times same bank does not risk its money and says to the company: "we will do our best and sell your stocks as high as we can and take a portion as our comission".

Small correction: it is not "arbitraging". Atbitraging implies quick guaranteed profit, while investment bank risks when it buys the pre-IPO stock, as it is not guaranteed to go up after IPO.