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
- Open a brokerage account by providing your personal information.
- Fund your account.
- Find an IPO you want to invest in or browse our IPO calendar for upcoming IPOs.
- Submit the number of shares of the IPO stock you want to buy and the price at which you want to buy them.
- Confirm your order before the IPO.
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.
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.
- 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
More on investing
Here are the 10 best gold stocks based on year-to-date returns for February 2024.Read more…
Here’s what happens to your securities if your brokerage fails, and how your assets are protected by SIPC and FDIC.Read more…
Treasury Bills are fixed-income assets with maturities of less than one year. Here’s what to know before investing.Read more…
Paid non-client promotion. Finder does not invest money with providers on this page. If a brand is a referral partner, we're paid when you click or tap through to, open an account with or provide your contact information to the provider. Partnerships are not a recommendation for you to invest with any one company. Learn more about how we make money.
Finder is not an adviser or brokerage service. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. All editorial opinions are our own.
More guides on Finder
Best broker cash sweep rates on uninvested cash
Check out our picks for the brokers with the best cash sweep rates on uninvested cash.
How to choose a financial adviser
A step-by-step guide on how to choose a financial adviser.
6 best Bitcoin ETFs of 2024
We analyzed a number of bitcoin ETFs to determine which are best to invest in.
How to buy Floor-and-Decor stock
Steps to owning and managing FND, with 24-hour and historical pricing before you buy.
How to buy Southwest Gas stock
Steps to owning and managing SWX, with 24-hour and historical pricing before you buy.
How to buy McDermott International stock
Steps to owning and managing MDR, with 24-hour and historical pricing before you buy.
How to buy Gen Digital stock
Steps to owning and managing GEN, with 24-hour and historical pricing before you buy.
How to buy Grail (GRAL) stock when it goes public
Everything we know about the Grail IPO, plus information on how to buy in.
How to buy Harley-Davidson stock
Steps to owning and managing HOG, with 24-hour and historical pricing before you buy.
How to buy Energy Transfer stock
Steps to owning and managing ET, with 24-hour and historical pricing before you buy.
Ask an Expert