Investing in IPO stocks can be an excellent way to diversify your portfolio. That said, there is a lot of confusion around IPOs and how they increase an investor’s exposure. This guide will provide some clarity.
Let’s look at what IPO stocks are and how you can buy them.
What Exactly is an IPO?
An initial public offering (IPO) is the very first sale of a stock issued by a company on the public market. It simply means that a private company has turned into a public one, giving the public a chance to buy ownership stakes.
An IPO involves several steps, such as selecting an underwriter, preparing a registration statement, submitting it to regulators, setting an initial offering price, and finally listing the shares on a stock exchange.
But as an investor, you don’t have to worry about any of this! Your job is to invest in a company with growth potential.
What are IPO Stocks?
The shares of a company that becomes public are called IPO stocks. Key features of IPO stocks include:
- Growth potential
- Price volatility
- Listing gains
Investing in IPO stocks offers numerous benefits, such as:
- Potential for high returns
- Opportunity to invest in innovative companies
- Early access to new markets
- Diversification of portfolio
How to Buy IPO Stocks
Now, let’s look at how to buy ipo stock. Follow these steps:
Open a brokerage account
Since IPO stocks are traded on a stock exchange, you need a brokerage account to gain exposure. Not all brokers offer IPO access to individual brokers, so it’s important to double-check.
Confirm your eligibility
Almost all brokerage platforms have specific eligibility requirements for IPO participation. For instance, a brokerage might require you to have $1 million in assets to become eligible.
Monitor for upcoming IPOs
Once you’ve made your brokerage account, keep an eye on upcoming IPOs. Follow news sources or a company’s investor relations website for the latest announcements.
Do your research
Before locking in, do thorough research on the company’s business model, financial situation, and previous growth. Pay special attention to how the company plans on using the capital raised through the IPO.
Submit an indication of interest (IOI)
Select the IPOs you’d like to participate in and submit an indication of interest (IOI). You will specify the number of shares you’d like to buy and often a price range. Then, you’ll be notified to confirm your buy order.
Receive your shares
Hot IPOs face high demand, so you may not always get the number of shares you requested. Nevertheless, you will receive the shares proportioned among interested investors.
Importance of a Reliable Brokerage
This can’t be stressed enough. A broker can make or break your IPO investing journey. Always check the reputation and experience of a brokerage with IPO stocks before finalizing the transaction.
Some platforms, such as SoFi, let you participate in IPOs before they trade on an exchange. In some cases, you can trade with no account minimum.
