An IPO is an "initial public offering" of stock for a corporation. In the world of finance, everyone likes to talk about hot IPOs, but buying an IPO, especially if it is considered hot, is very difficult for the average person. Buying an IPO is usually left to either the wealthy or to those who have inside connections to the company or underwriters. However, there are a few times and ways that you can get in on an IPO.
- Skill level:
Things you need
- Brokerage account
Get a trading account. You need a brokerage account to buy stock of any kind, but for an IPO, you need to pay particular attention to which brokerage firm you sign up with. You can use a discount broker such as E-Trade or you can go with a bigger traditional broker such as Merrill Lynch. Ask questions about IPOs and their availability at whichever broker you consider.
Research individual IPOs. There are a number of websites you can visit to find out information and dates for upcoming IPOs. If you have in mind a certain company, you can usually go directly to its website to find out information about its IPO.
Find out who has the connections. The underwriters for an IPO decide who gets IPO shares and how many--and it is not an even distribution. Usually IPO stocks go to large institutions and sometimes they are allotted to brokers. Brokers usually sell IPOs to their top clients. You can set up an account with the underwriters in hopes to get in on the IPO action, but they will likely give the IPO to their big customers. Your best bet outside of becoming friends with someone in a top position at the underwriters is to sign up for an account with a discount broker that has a connection to the underwriters. They sometimes offer IPOs to individuals. E-Trade has a part of its site set up to get in on IPOs. No matter what you do, you are unlikely to get a large number of shares.
Buy the stock. If you are going through a discount broker and it has given you the right to purchase an IPO, go to the "Buy" section of the website and enter the ticker symbol for the IPO company and the number of shares you want to purchase. Then click to buy. As long as you are within the limits given you by the broker, your purchase will be complete and the stock will be in your trading account. If you are using a traditional broker, you can follow this same process over the phone by calling your broker.
Tips and warnings
- Even if you can get access to an IPO, some brokerages require that you have £325,000 or more in your accounts before they will let you in on IPOs.
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