Beautiful Virgin Islands

Tuesday, Jun 24, 2025

Companies are going public more than ever - here's how to buy IPO stock

Companies are going public more than ever - here's how to buy IPO stock

Private companies and startups issue IPOs when they want to grow and expand business operations. We show you how to invest in them.

The market for newly public companies is an exciting one. Who wouldn't want to enter the "ground floor" of a company with the opportunity to profit from its future growth?

But investing in an initial public offering (IPO) can be confusing, if not downright risky. If you're thinking about investing in IPOs, it's important to remember that many IPO stocks underperform broader market benchmarks in the long-run. Not all IPOs become unicorns.

But profits await for those who pick the right IPO stock. While financial institutions, company insiders, and wealthy clients typically have greater access to IPOs, the average retail investor can also get in on the action.

But just because you can invest in IPOs doesn't mean that you should. Here's what you need to know when deciding on an IPO stock.


Understanding the IPO process


With an IPO, a private company "goes public" by offering its stock for the first time on a stock exchange, like the NASDAQ or NYSE. In order to make a registered offering, a company must file a registration statement with the US Securities and Exchange Commission (SEC).

The IPO process differs from a direct public offering (DPO) in which a company directly lists its stock on the market.

Companies go public primarily to raise capital or expand operations. With traditional IPOs, businesses hire an underwriter — usually an investment bank — who leads and directs the IPO, drafting the company's prospects, setting the IPO price and drumming up interest from potential investors, known as an IPO roadshow.


Why IPOs have been historically exclusive


IPOs have long been more accessible to institutional entities (eg. hedge funds, mutual funds, insurance companies) and high-net-worth clients with more capital to trade.

While company executives (and sometimes employees) also have access to IPO shares, investment bank underwriters typically give larger amounts of shares to institutional clients because they believe that they're better equipped to purchase the shares and assume any risk over the long-term, according to the SEC.

But several online brokerages have created ways for retail investors to get in on the action. If you don't want to wait until a company's IPO shares have listed on the exchange, you may be able to get in at the offering price.


How things are changing for the retail investor


Many discount brokerages have given retail investors more access to IPOs. These online platforms allow you to "participate in an IPO," but you'll usually need to meet several eligible requirements before you can request shares.

Some brokerages have minimum account size mandates, and most require you to read a company's prospectus and financial disclosures before you move forward in the IPO process.


Why IPOs are popular with investors


IPOs can be intriguing for a number of reasons. For one, they afford investors the opportunity to get in on their favorite companies at the lowest price and capitalize off of first-day price surges. Once the shares are available to the public, they can also be financially rewarding to those who participated in the IPO and bought in at its offer price.

However, IPOs also carry notable risks and may not be ideal for beginner investors with long-term horizons. But if you're still interested in purchasing stock before it lists on the exchange, keep reading to see how to get started.


How to buy IPO stock


The SEC lists two ways for retail investors to to get in on IPOs. You can participate in an IPO, or, more commonly, purchase the shares when they are sold in the days following the IPO.

To better understand the two ways to buy IPO stock, it helps to know the difference between offering price and opening price:

*  Offering price: Though typically set aside for accredited investors and institutional clients with more money to invest, you can also purchase shares of the stock at its offering price if you're a client of the IPO's underwriter. And though it's more difficult to get in as a retail investor, you may still be able to participate in the IPO, depending on your broker.

*  Opening price: Also known as the go-public price, this price represents the value at which the public can purchase shares on an exchange. You can buy shares through your brokerage after they're resold to the public exchanges, or you can participate in the IPO if your brokerage allows.

If you wish to participate in the IPO at offering price, here's how to do it.


1. Do your research


IPO research can be daunting since there isn't any historical data or market performance history behind the company at hand. But thanks to the SEC, all companies must file a S-1 form to register their offerings. This form basically provides background information on the company, financial information, and a prospectus on the offering itself.

You can also utilize resources like the Nasdaq calendar which provides the latest details on IPOs.


2. Check your eligibility with your brokerage


All brokerages have different requirements for participating in an IPO, so make sure to do your due diligence before getting started. For instance, when it comes to minimum account size, Fidelity requires individuals to have either $100,000 or $500,000 in household assets to qualify (see more information on Fidelity's process here).


3. Submit indication of interest (IOI)


Brokerages may also require you to fill out an indication of interest (IOI) form to determine how many shares you'd like to purchase. While the IOI window lasts for multiple days, brokerages like Fidelity require IOIs to be for a minimum of 100 shares.


4. Confirm your order


After you've submitted and entered your IOI, you'll need to confirm the IOI in order to receive shares. Though the process varies per brokerage, you can generally do this by locating the IPO deal you're interested in and clicking "participate."

You'll then need to confirm any open IOIs to officially submit your order.


The risks of buying IPO stock


While 2020 was a big year for IPOs, 2021 has proven to be an even bigger year. There have already been 497 IPOs in the US (there were only 72 IPOs by the same time last year), according to StockAnalysis.com.

But it's important to consider the risks behind these investments. IPO stocks are extensions of companies that haven't had long-standing track records in markets, and many investors can confuse popular demand with intrinsic value. For this reason, you should do your research and analyze any company disclosures before moving forward.

In addition, when investing in these newly converted startups and private companies, it's important to ask yourself how much risk you're willing to take on. IPOs are generally volatile, so it's wise to exercise caution when it comes to the first-day pops and prices surges. Companies that are truly valuable will remain that way over the long-term.

That's not to say that IPO stocks can't be rewarding, but it's wise to consider the differences between these investments and blue-chip stocks (blue-chip stocks are popular companies with long track records of success in the markets and their respective industries).


Alternatives to IPOs


Even though retail investors are getting more access to IPOs, it can still be difficult to get in game. However, there are three other ways to capitalize off new stock. These include (but aren't limited to) the following:

*  Direct listings: A direct listing takes place when a company immediately makes its stock available on exchanges without consulting an investment bank to underwrite an IPO. In fact, popular cryptocurrency exchange Coinbase used this approach when it went public in early April 2021.

*  Special purpose acquisition companies (SPACs): SPACs, on the other hand, are blank-check companies that raise funds by acquiring and merging with other private companies that want to become public.

*  IPO ETFs: IPO ETFs contain a diversified blend of companies that recently transitioned into the public markets. This is generally safer than investing in a single IPO since IPO ETFs lower your risk by spreading your money across multiple IPOs. If you're interested in the hype and short-term demand of single IPOs, these may not be ideal. IPO ETFs make more sense over the long haul.



The financial takeaway


You'll have multiple options for investing in IPO stocks as a retail investor. If you'd like to participate in an IPO, make sure to compare the eligibility requirements between different apps and review company prospectuses if possible.

But while many companies utilize the IPO model, some private companies also go public through direct listings or with the help of a SPAC.

Nonetheless, it's wise to do thorough research before buying stake in a newly listed company. IPO investing can be risky even if it's with high profile companies who've recently crossed over into the public realm. But no matter which investment type you choose, experts recommend only investing what you can afford to lose.

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
“You Have 12 Hours to Flee”: Israeli Threat Campaign Targets Surviving Iranian Officials
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Airlines Evaluate Flight Cancellations Amid Escalating US-Iran Tensions
Starmer Invites Innovators to Join Government Talent Scheme
UK Economy’s Strong Opening Quarter Shows Signs of Cooling
Harrods Seeks Court Order to Secure Al Fayed Estate for Victims
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
WATCH: Israeli forces show the aftermath of a massive airstrike at Iran's Isfahan nuclear site
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
We have new information and breaking details to share about what is shaping up to be a historic air campaign tonight
Six Massive Bombs Dropped on Fordow; Trump: 'A Historic Moment for the U.S., Israel, and the World'
Fordow: Deeply Buried Iranian Enrichment Site in U.S.–Israel Crosshairs
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Pakistan to nominate Trump for Nobel Peace Prize.
BBC Demands Perplexity AI Immediately Stop Using Its Content
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
Political Turmoil Resurfaces in Belgium Amid Economic Concerns
Fed policymakers divided on timing of interest rate cuts
Trump signals imminent agreement with Harvard University
Inheritance tax referendum alarms Swiss billionaire community
Japan cancels bilateral security meeting amid US defence demands
AI skeptic Emily Bender warns that ‘the emperor has no clothes’
Israel Confirms Assassination of Quds Force Commander in Tehran
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Iranian Military Officers Reportedly Seek Contact with Reza Pahlavi, Signal Intent to Defect
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Vietnam Emerges as Luxury Yacht Destination for Ultra‑Rich
Plans to Sell Dutch Embassy in Bangkok Face Local Opposition
China's Iranian Oil Imports Face Disruption Amid Escalating Middle East Tensions
Trump's $5 Million 'Trump Card' Visa Program Draws Nearly 70,000 Applicants
DGCA Finds No Major Safety Concerns in Air India's Boeing 787 Fleet
Airlines Reroute Flights Amid Expanding Middle East Conflict Zones
Elon Musk's xAI Seeks $9.3 Billion in Funding Amid AI Expansion
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
Israeli Airstrike Targets Iranian State TV in Central Tehran
President Trump is leaving the G7 summit early and has ordered the National Security Council to the Situation Room
Taiwan Imposes Export Ban on Chips to Huawei and SMIC
Israel has just announced plans to strike Tehran again, and in response, Trump has urged people to evacuate
Netanyahu Signals Potential Regime Change in Iran
Juncker Criticizes EU Inaction on Trump Tariffs
EU Proposes Ban on New Russian Gas Contracts
×