Lock-up Period

A lock-up period is a set stretch of time during which certain holders of a stock or fund are contractually barred from selling their shares. It is not a rule imposed by an exchange on the general public — it is a restriction placed on a specific group, most commonly company insiders after an IPO, or investors in a hedge fund.

In the IPO context, when a company goes public, its founders, employees, and early investors typically already own large blocks of stock. If they could sell immediately on day one, the newly listed stock could be flooded with sell orders, crushing the price for the new public buyers. So underwriters (the banks that manage the IPO) require these insiders to sign an agreement promising not to sell for a fixed window after the listing, often measured in months. When that period ends, it's usually referred to as the "lock-up expiration," and it can bring a noticeable jump in available shares for sale.

In the hedge fund context, the lock-up works differently: it restricts investors in the fund from redeeming (cashing out) their money for a period after they invest. This gives the fund manager room to hold less liquid or longer-term positions without being forced into a fire sale if several investors want their cash back at once.

The nuance beginners miss is that a lock-up period restricts specific parties from selling, not the stock itself — the stock trades normally on the exchange the whole time. It's also worth not confusing this with a trading halt or a settlement period, which are separate mechanics that pause or delay trading for everyone, not just insiders.