Initial Public Offerings (IPOs) can offer investors a chance to buy shares in a company before it becomes widely available on the open market. Getting in early on a promising IPO can lead to significant gains, but it also comes with risks.
Thanks to advancements in online investing platforms, buying IPO stocks is now easier than ever for individual investors. However, there are a few essential steps you should follow to navigate the process effectively.
Here’s a step-by-step guide to help you buy IPO stocks through online brokers.
Contents
Step 1: Understand What IPO Stocks Are
Before diving into the market, it’s important to understand what an IPO is. An Initial Public Offering is the process through which a private company becomes publicly traded by offering shares to the general public for the first time. These offerings are often surrounded by hype, but not all IPOs perform well once they start trading.
IPOs can be volatile, and their prices may fluctuate significantly in the early days of trading. That’s why you should approach IPO investing with clear knowledge, risk awareness, and a solid investment strategy. Knowing how to buy IPO stock is just as crucial as understanding the potential ups and downs of investing in one.
Step 2: Choose an Online Broker That Offers IPO Access
Not all online brokers provide access to IPOs, so your first task is to choose a platform that does. There are many brokers who have started offering retail investors access to IPOs under specific conditions. Some platforms may require a minimum account balance, trading history, or participation in a waitlist.
It’s a good idea to research the eligibility requirements for each broker. Some platforms partner with investment banks to allocate shares to retail investors, while others offer access only after the IPO starts trading on the public exchange. Choose a broker that fits your needs and offers straightforward IPO participation. For further and detailed information, you can read the comprehensive guide on SoFi on this topic.
Step 3: Meet Eligibility Requirements
Once you’ve selected a brokerage that allows IPO access, you’ll likely need to meet certain criteria before you can participate. These might include a minimum account balance, investing experience, or acknowledgment of the risks involved.
Many brokers also require you to fill out a questionnaire or sign disclosures confirming your understanding of IPO investing.
Meeting these requirements is necessary because IPOs can be speculative and are not suitable for every investor. If you qualify, you may be allowed to view available IPOs and submit a request to buy shares before the official public listing.
Step 4: Submit an Indication of Interest
When an IPO becomes available through your broker, you’ll typically need to submit an Indication of Interest (IOI). This is a non-binding request that lets the brokerage know how many shares you’d like to purchase. It does not guarantee you’ll get the shares, but it puts you in the running for an allocation.
The final offering price and share allocation are determined shortly before the IPO begins trading. If your request is accepted, you’ll receive a confirmation, and the shares will be allocated to your account on the day of the IPO.
Step 5: Monitor and Manage Your Investment
After you’ve successfully purchased IPO shares, the real work begins. Keep a close eye on the stock’s performance in the early days of trading. Some IPOs surge in value, while others drop below their initial offering price. Because of this unpredictability, it’s important to have a strategy in place before you invest.
Decide whether you’re investing for the short term or long term and stick to your plan. Set price alerts, follow market news about the company, and be prepared to adjust your portfolio if needed. IPO investing can be exciting, but it requires discipline to avoid getting swept up in short-term hype.