How to buy IPO stock

It seems enticing to jump aboard an initial public offering known as an IPO — you get to be among the first to buy the stock when it starts trading on major exchanges. In some cases during the bull market, the stock jumped 50% or more within the first trading day, and sometimes even doubled in price within a few weeks.

Investing in an IPO at its offer price used to be almost impossible for everyday investors. Luckily, with platforms like Robinhood and Interactive Brokers things are starting to change.

How to buy IPO stock in 5 steps

1. Open a brokerage account by providing your personal information.
2. Fund your account.
3. Find an IPO you want to invest in or browse our IPO calendar for upcoming IPOs.
4. Submit the number of shares of the IPO stock you want to buy and the price at which you want to buy them.
5. Confirm your order before the IPO.

Note: Trading platforms like Robinhood and Interactive Brokers don’t guarantee your order will be filled, but anyone can submit an IPO purchase request.

Our pick for buying IPO stock: Interactive Brokers

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When can I sell an IPO stock?

A lot of stock traders are looking to get in an IPO stock and sell it at a profit in a short period of time, typically within the same day of the IPO or in the next few weeks. Here’s what to consider before you sell your IPO stock:

• Taxes. Any profit you earn from shares you hold less than one year from the day you purchased them are taxed as ordinary income. This is higher than long-term capital gains.
• You may be prevented from buying IPO stocks again. Trading platforms like Robinhood may prevent you from accessing IPO stocks for 60 days if you sell your IPO shares within 30 days of the IPO. That’s because Robinhood considers this “flipping”. Other platforms have a similar policy on flipping, and some may even block you from buying IPOs on their platform.

How to find an IPO stock to buy

Trading platforms that offer IPO stocks will typically either notify you of upcoming IPOs or they will have a calendar of upcoming IPOs. As an alternative, you can check for upcoming IPOs on MarketWatch and Nasdaq.

Some companies may bypass the IPO route and list directly on a stock exchange. These companies don’t typically appear in the IPO calendar or IPO sections of your broker. You would have to follow the news to learn when a company will list directly.

Dive deeper: Learn how to buy pre-IPO stocks.

Benefits of buying an IPO

• You could buy it cheap. During bull markets, IPOs tend to outperform during the first days of trading. This means you could buy a company you want, at potentially cheaper prices.
• Get dividends earlier. If the company pays out dividends, you can start earning it earlier than if you bought the IPO months down the line.
• Potential for growth. Companies typically go public when they need to raise capital for growth. If the company succeeds with its product, you could be looking at a massive growth potential down the line.

Risks of buying an IPO

• The stock may lose value. Even after a successful IPO, a company may see its share price plummet. The reasons could be either macroeconomic or the company simply can’t compete with its current product offering.
• The IPO price may not be at fair value. Even if you’re among the first to invest in the IPO, the company could be overvalued. That’s because the company may be new, and with limited financial and other information it could be hard to determine the real value.

Should you buy an IPO stock?

It depends on the company you’re looking to invest in and your risk tolerance. If the company is a solid one that’s been around for years before the IPO, it offers a popular product or service and it has great financials, you could consider buying it.

But if the company is new and in sectors like tech or healthcare where the product is still in development, chances are high that the company may fail even if they successfully raise funds.
And if it succeeds, you could be looking at a massive payday. It’s important to practice your due diligence before investing in an IPO.

Dive deeper: What is an IPO?

Bottom line

• Some trading platforms like Robinhood and SoFi let you buy into IPO companies at IPO prices.
• Make sure you understand the terms of IPO stock purchases with your trading platform.
• You could sell your IPO stocks right away, but your brokerage may consider this to be “flipping” and prevent you from buying IPO stocks again.

Frequently asked questions

• Can we directly buy an IPO?

  Yes. However, which IPO and how many shares you can buy depends on your trading platform.

• Is it good to buy IPO stocks?

  This largely depends on your goals. If you want to own shares from a particular company from the moment it starts trading on an exchange, buying at IPO prices could be a good deal. This isn't guaranteed, though, so make sure you exercise your due diligence before buying the IPO.

• How to buy IPO stocks on Robinhood?

  Find the IPO you want to buy on the Robinhood app and request to buy shares at the offering price range. You can modify your order or cancel before the company goes public.

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