Why Invest In IPOs And How Does A Retail Investor Do It?

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IPO investment has only recently become available to European retail investors, but it has already created a lot of interest due to its great potential to bring high profit in the short run. Freedom Finance experts explain all things IPO: how and why to invest and what to consider before trying out a new investment strategy.

Why Can It Be More Profitable To Buy Stocks At The IPO Prices?

When a company goes public, there is a perfect opportunity to buy its stocks at the IPO price, which could later rise significantly.

Some of the IPOs of 2021 saw impressive growth. Here are some examples (the percentages show stock price growth after a 93-days lock-up period counted from the date of the initial public offering).

AirBnb - 188% (lock-up ended 01.03.2021)
Upstart - 475% (lock-up ended 18.03.2021)
BioAtla - 293% (lock-up ended 18.03.2021)
Doximity - 231% (lock-up ended 27.09.2021)
Monday.com - 140% (lock-up ended 13.09.2021)

In 2021, there was a record-breaking number of listings on the IPO market and an enormous amount of capital raised. As of Q3, 1,635 companies were listed globally, raising a total of $330.7 billion.

So, what about 2022? After a short break in the beginning of the year, a lot of companies filed their IPO applications to become public soon, and the most anticipated future IPOs are TikTok, Reddit, Stripe and Starlink.

How To Buy New Stocks At Their IPO Price

Usually, the option to buy stocks at IPO price is reserved for institutional investors, like investment banks and hedge funds. However, also for retail investors there is an opportunity to take advantage of the initial public offerings of top companies if they choose the right broker.

Currently, Freedom Finance Europe says it is the only EU broker which allows getting new stocks at the IPO prices. The British customers can access this distinctive feature through Freedom24 online trading platform, offering also a wide variety of classic investment instruments such as stocks, ETF (funds), US options and others.
How does it work? Freedom Finance, on a par with other corporate players, participates in IPOs and then distributes the stocks between its customers. Freedom Finance historically gets an allocation for IPO stocks due to the long-standing partnerships with leading banks and underwriters lasting since 2012. The reliability of the broker is confirmed by a full compliance with MiFID II and more than 400,000 customers. It would be worth noting that Freedom Finance is also a publicly traded company itself FRHC.

The Freedom Finance award-winning analysts have already recommended 269 IPOs with a 58% average price growth of the stocks at the end of 93-days lock-up period (as of 4/13/2022)

What Should Be Considered Before Purchasing The Stocks At The IPO Price

IPO is a highly anticipated event. It is in great demand not only from the individual investors but also from large players and corporations. The total number of applications for the IPO stocks always greatly exceeds the latter’s available amount, so the number of shares distributed at the IPO stage is always limited.

Therefore, in most cases, each investor who applies for acquiring the stocks at IPO price, only obtains a percentage of the applied number of stocks. The “unused” funds in the application (remaining after buying the amount of the available shares) return to the trader’s account.

How to make the process more transparent? Freedom24 came with the following solution: for its customers, the percentage of shares available to the customer during the IPO depends on the client rating on the platform. The rating is based on the regularity of trading, portfolio liquidity and the persistence of IPO participation.

How To Get New Stocks At Their Initial Price Via Freedom Finance (Freedom24)

 - First of all, you need to open an account on the Freedom24 platform. In the registration form, fill in your e-mail and phone number, and provide the required documents at the next step (proof of ID and proof of residence address) to complete the verification. The account opening takes around 10 minutes.

- Top-up your account by wire transfer or bank card and create the investment portfolio of highly liquid stocks to start growing your client rating and get more stocks at the IPO price 

- Choose the appropriate company at the Freedom24 IPO page and apply for receiving selected company’s stocks at the IPO price and specify the amount you want to invest.

- The day before the company’s IPO date, the applied sum will be blocked at your account. The unused amount will be returned to the account on the following day.

- After the IPO date, the 93-days lock-up period follows, when the IPO stocks cannot be sold (to avoid the impact of market fluctuations on the state of investors)

 - On the first trading day (when the lock-up period expires), you will receive the new stocks at the IPO price. Now you are free to choose - to sell them immediately or keep them as a long-term investment.

Please note: investments in securities and other financial instruments always involve the risk of loss of capital. Investment in IPO may involve additional restrictions. The forecast or past performance is no guarantee of future results.

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.