How To Buy Into a Stock IPO: 6 Steps

Updated: Apr. 26, 2022By: Michelle Jones

Initial public offerings (IPO) provide an opportunity to get in on a stock from the day it hits the market. Due to a history of some large IPO gains, many investors might think IPOs are a good investment, but that isn't always the case. As with any stock, it's prudent to research before you buy anything. Below it will be discussed how to buy IPO stock on the first day before it starts trading.

Businessman hand holding red arrow up with the letters IPO on money coin stack arranged as a graph
holwichaikawee/iStock via Getty Images

6 Steps to Buying IPO Stock

Here's a step-by-step process for how to buy IPO stock. This process is for investors who are attempting to purchase shares in the initial public offering before they start trading on the secondary market.

Step 1: Set Up an Account with a Brokerage

Be sure you set up an account with a brokerage that offers IPO stocks, as not all do. Some online brokerages that do offer IPO trading are TD Ameritrade, Fidelity and Robinhood.

Tip: Buying stock in an IPO involves setting up an account with an online brokerage that offers them, although there is no guarantee that you will be able to secure shares because brokers have a limited number of IPO shares on offer.

Step 2: Identify the Stock to Purchase

Investors who follow financial media probably have a good idea about which companies are getting ready to hold IPOs and which ones they want to buy into.

Step 3: Check Your Eligibility

Not all investors are eligible to invest in an IPO. Depending on the broker and the IPO, eligible investors may be required to have either $100,000 or $500,000 in household assets, excluding annuity or institutional assets like a 401(k) or other retirement accounts. Eligible investors may also have to meet broker-specific requirements like subscribing to premium services and being an active trader. Brokers may also prevent investors from buying into future IPOs if they flip their IPO shares by selling them immediately after purchasing them when the price rises.

Step 4: Request Shares

Investors may not always be able to buy shares in a particular IPO, so they will have to request shares to see if the broker has any available. Each broker has a set number of shares that are sold to eligible investors.

Step 5: Place the Order

An order for these shares is a conditional offer to buy (COB), which is similar to a buy order, except that a COB doesn't become active until the IPO is priced. Investors can edit or cancel their COB until the confirmation window closes after final pricing.

Step 6: Confirm The Order is Processed Properly

After the COB is entered and the IPO is priced, investors can confirm whether their order was filled or not. If there weren't enough shares to fulfill all the orders, not every investor will be able to buy IPO shares.

Where Can You Purchase IPO Stock?

Investors can purchase an IPO stock through some online brokerages that offer the service. Momentum investors often purchase IPO stock hoping for quick, initial momentum-driven gains at launch. However, most IPOs are risky, so conservative investors are often less inclined to participate.

How Do You Find Upcoming IPOs?

To figure out what IPOs are coming up, investors can check Seeking Alpha's upcoming IPO article, IPO News feed, or IPO Analysis feed. Investors can also look at the New York Stock Exchange, the Nasdaq or any other stock exchange for the basics about any companies that are planning an IPO in the near future.

Stock exchanges offer only the basic financial information about the company, whereas independent analysts that contribute to Seeking Alpha offer insights beyond the basic figures.

What Time Do IPOs Start Trading?

IPOs don't start trading at a specific time in the United States. The IPO is held before the market opens, and then shares generally start trading when the market opens at 9:30 a.m. Eastern. However, the average retail investor often can't purchase them right away. It may take an hour or more before the new stock becomes available in regular trading unless you are eligible to buy shares in the IPO before the trading opens on the secondary market.

Can You Buy Pre-IPO Stock?

Pre-IPO stocks are sold as private placements before the IPO is held. They are sold in large blocks of shares before the listing, so the average retail investor may not be able to buy pre-IPO stock. Private-equity firms, hedge funds and other institutional investors are usually the purchasers of these stocks. High-net-worth individuals with at least $1 million in liquid financial assets may also participate. Pre-IPO stocks can be extremely risky, as there is no guarantee that they will become successful enough to be listed.

Are IPOs A Good Investment?

Perhaps the most important thing to know about investing in IPOs is that they can be extremely risky, as already stated. Whether the company has staying power and can grow its revenue steadily are just some of the factors that impact the investor reaction to the new listing.

The biggest risk is that the stock will decline in the days and weeks after its IPO. Sometimes a stock soars post-IPO the same day as the IPO but then plunges in the next few days or weeks, while in other cases, these stocks will continue to soar for weeks after their IPO. The wild fluctuations in the stock price can be very stressful, making it difficult to stay invested when it falls.

Tip: IPO stocks can be extremely risky because they tend to be volatile.

This article was written by

Michelle Jones profile picture
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Michelle Jones is editor-in-chief for ValueWalk.com and a daily contributor for ValueWalkPremium.com and has been with the sites since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She lives in the Chicago area with her son, dog and two cats.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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