If you’re a retail investor with an appetite for risk, buying pre-ipo shares can be a great way to boost your returns. However, you should only do this if you’re comfortable with the volatility of these investments. It’s also important to keep in mind that IPO stocks are usually only appropriate for investors with high risk tolerances and long investing horizons.
How to Buy IPO Shares
In order to purchase IPO stock, you must first open an account with a brokerage firm that offers access to IPOs. Many brokers, such as TradeStation and Fidelity, offer access to these types of offerings, but you may have to meet certain eligibility requirements.
You should read your broker’s policies on IPO participation before making any purchases, including the requirements for eligibility. Depending on the brokerage firm, you might have to invest a minimum amount in your portfolio or be able to execute a specific number of trades within a certain time frame.
Once you’ve opened an account with a broker that offers access to IPOs, your brokerage will notify you if the company plans to sell shares at an IPO. You’ll be given a deadline to place your order for shares.
If the IPO goes through, you’ll receive an allocation of shares, which will post to your account on the day the IPO begins trading on the exchange. You’ll then have a couple of days to decide whether to sell your IPO shares at the market price or hold onto them.
Selling IPO shares quickly, known as “flipping,” is prohibited by most brokerage firms. The reason for this is that if you sell too soon, you could be forced to pay steep commissions or fees. If you’re concerned about this, you can consider a IPO exchange-traded fund (ETF) or mutual fund that focuses on IPOs.
How to Buy IPO ETFs
You can also How to buy pre-ipo shares directly through your brokerage firm. This is a good option for individual investors who want to be involved in an IPO, but don’t have hundreds of thousands of dollars available.
A good rule of thumb is to use a brokerage that has a small client base, such as boutique brokers or smaller financial institutions. These firms are often more willing to accept and process IPO transactions for their clients than larger firms.
Buying pre-ipo shares through a brokerage is the most common way to invest in IPOs. It’s also a good idea to invest in IPO-related ETFs or mutual funds as well.
To start with, you’ll need to set up an account on your chosen broker’s website. You’ll need to provide your contact information, password, and deposit a minimum amount of cash into your account. Once you’re logged in, you can browse through the list of companies that are going to IPO in the next two years.
Once you’ve sifted through the list, you can find companies that have a strong business model and the potential to become successful. You can also sign up for email alerts to stay abreast of upcoming IPOs.