How to Invest in Upcoming IPOs

Contributor, Benzinga

Are you looking to buy an IPO? With Sofi Active Invest you can participate in upcoming IPOs before they trade on an exchange.

Budding companies that start trading on the stock exchange with an initial public offering (IPO) can make a worthwhile investment. If you’re an early investor in these new business ventures, you could make a profit in a short time. Here is how to invest in upcoming IPOs.

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What is an Upcoming IPO?

An IPO is the 1st time a privately-owned business offers equity share in its company to public investors. At this time, the company is underwritten by an investment bank or a broker that buys a limited amount of shares for a set price. These shares are then distributed to the financial market through major stock exchanges to let investors buy and sell the company stock.   

Why Does a Company Go Public?

Taking a company public is a major strategic decision. There can be many reasons behind a company going public: 

  • To raise capital
  • To compensate employees with public company stock and stock options
  • To build the brand and reach a broader audience
  • To acquire other companies with an equity share 

In some cases, the company can be repurchased after going public by a private investor to save it from undergoing massive losses. Michael Dell and Silver Lake reacquired Dell for $24.9 billion after the tech company went through dismal performances in the market.  

How to Track an IPO

You can track an IPO in several ways: 

NASDAQ. NASDAQ is a major stock exchange and lists thousands of stocks for public trading. Its IPO Calendar tracks the daily price movements and shares trade volume of companies. 

NYSE. The New York Stock Exchange (NYSE) has a dedicated section to track IPO activity called the IPO Center. It has crucial financial information on upcoming IPO stocks such as the issuer, shares filed and file price range. 

Yahoo! Finance. You can check the latest stock information of IPOs on Yahoo! Finance. It has an IPO section that details stock data such as the stock exchange, data of issue, price range, stock price and share trade volume.

Ipo Inteligence

Source – Yahoo! Finance

How to Invest in Upcoming IPOs

Here’s a guide to help you invest in upcoming IPOs on major stock exchanges. 

Step 1: Pick a Brokerage

You can trade stocks, exchange-traded funds, mutual funds and foreign currencies with the help of online brokers. These platforms are easy to use and allow you to manage your portfolio on-the-go. 

Check out these top online brokers to get you started. 

get started securely through SoFi’s website
Best For
IPO Investing
N/A
1 Minute Review

SoFi’s mission is simple: to help reach clients like you reach their financial independence and realize their ambitions. SoFi knows that this independence comes from making decisions that help your money start to work for you in the long run. The brand helps individuals make these decisions through personal financial products such as personal loans, student loans and automated and active investing

The brand additionally provides in-person experiences such as educational and networking events, personalized guidance from experienced financial planners and one-on-one advising with professional career coaches. SoFi’s services have been highlighted in outlets such as Forbes, Medium, and CNBC’s Make It.

Best For
  • IPO Investing
  • Mobile Investing
Pros
  • U.S.-based customer service
  • Highly-rated mobile app for iPhone and Android
Cons
  • Only available in the U.S.
get started securely through Freedom Finance’s website
Best For
Experienced Traders
N/A
1 Minute Review

Freedom Finance Europe Ltd, the only European-based stockbroker listed on the Nasdaq, gives investors the ability to participate in big-name initial public offerings (IPOs) — opportunities as exciting as Airbnb (NASDAQ: ABNB), Snowflake (NYSE: SNOW) or Robinhood (NASDAQ: HOOD). Freedom Finance commenced operations in 2008 with the IPO for Facebook (NASDAQ: FB). Subsequently, Freedom Finance offers its services to 350,000 global clients, allowing participation in over 250 IPOs through its convenient online platform, which includes 40,000 stocks, 1,200 exchange-traded funds (ETFs) and 147,000 bonds on the largest exchanges in Asia, Europe and the U.S.

Best For
  • Persons from ages 30 to 65
  • Small- or medium-sized business owners
  • Customers looking for higher interest accounts
  • Experienced traders
Pros
  • Exclusive IPO access to Freedom24.com for European users
  • Minimum $2,000
  • Free promo plan
  • Free demo
Cons
  • No crypto investment opportunities
get started securely through TradeStation’s website
Best For
Futures Trading
N/A
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
get started securely through Robinhood’s website
Best For
Beginners
N/A
1 Minute Review

Robinhood is a broker designed for traders who want a simple and easy-to-use platform. It takes out all the bells and whistles that can be confusing to the modern day trader, serving as the perfect place for beginners to learn the markets. The interface is intuitive and easy to master, streamlined to ensure you don’t get distracted as you build a portfolio. Though advanced traders might like more thorough analysis tools, Robinhood gives you everything you need to start trading and learn the ropes.

Best For
  • Beginner traders
  • Mobile traders
Pros
  • Streamlined, easy-to-understand interface
  • Mobile app with full capabilities
  • Can buy and sell cryptocurrency
Cons
  • Fewer analysis tools than most
  • Only taxable, non-retirement accounts are available
Best For
Accredited Investors

Best for Accredited Investors: Linqto

Linqto is a leader in liquidity in the private sector, providing accredited investors access to affordable investment opportunities in the world’s top unicorns. Traditionally, only 2% of the world’s accredited investors have legal access to the world’s private markets.

Linqto utilizes a technology-enabled platform to address this issue by providing a liquid investing environment for the other 98% to also invest in unicorns before they go public. Their platform ultimately makes the private securities asset class accessible, while reducing costs and saving time with the flexibility of trading directly on the mobile app.

Step 2: Decide How Many Shares You Want

Depending on your financial goals and the money you want to invest, you can choose the number of shares you want to buy. The easiest way to decide this is by dividing your investment budget with the price of the stock. 

For instance, if you have $1,000 to invest and the price of the IPO is $10, you can buy up to 100 shares of the stock. After that, complete the following criteria:

  • Order type. Based on your trading strategy, you can choose the type of order you want to execute. 
  • Bid. The bid is the price at which you want to buy the shares. If you have limited money to invest, you can consider investing in stocks under $20 such as iHeartMedia (NASDAQ: IHRT). Let’s say the stock quote of IHRT is $7. You can set the bid price for $6 and as soon as the stock price drops to that price, the order gets fulfilled.
  • Ask. The ask is the price at which you want to sell the shares you own. Ford (NYSE: F) is one of the best stocks under $10 to invest in. In this case, you can set the ask price for Ford at $7 and the order gets executed when the stock price rises to that value. 
  • Spread. The spread is the difference between the bid and the ask price of the stock. If the bid price of Intel (NASDAQ: INTC) is $58.5 and the ask price is $59.5, the spread is $1. Stocks under $5 tend to have lower spreads. 
  • Limit order. A limit order lets you trade a stock at a particular price. You can only set a buy limit at a lower price than the stock quote. Similarly, you can only set a sell limit at a higher price than the stock quote. If the broker is unable to find a buyer or a seller to match your limit price, your order will not be executed.   
  • Stop-loss order. A stop-loss order lets you limit the losses from your trades. You have to set a stop value that is below the price of the stock. Once the stock quote reaches the stop value, it will automatically turn into a sell market order. 
  • Stop-limit order. You have to assign 2 values for a stop-limit order. If you set a stop value of $58 and a limit value of $56, the order will only be sold at $56 or higher. 

Step 3: Execute Your Trade

Once you’ve decided on the number of shares you want to trade and the order type, you can execute the order to have it fulfilled. 

Pros to Buying Upcoming IPOs

Take a look at some of the advantages of investing in upcoming IPOs. 

IPOs can grow exponentially in value. IPOs present an exciting opportunity for early investors. If you had invested $1,000 in Alphabet (NASDAQ: GOOG) during Google’s IPO of $85 back in 2004, your shares would be worth $1,478,000 today. Tesla (NASDAQ: TSLA) went public with an IPO of $17 in 2010. If you had invested $1,000 in Tesla, your shares would be worth $1,210,000 today.

IPOs can help companies acquire or merge with other businesses. Investors take an active interest in IPOs to support mergers and acquisitions. Privately-owned companies in need of cash go public in an attempt to raise capital for further acquisitions and business expansions. The early investments from IPOs can fuel the company’s capacity to buy into other businesses and offer a large equity stake to cut the cost of acquisition. These acquisitions can boost the value of a stock and increase your returns in the long run. 

Cons to Buying Upcoming IPOs

Take a look at some of the disadvantages of investing in upcoming IPOs. 

IPOs don’t have sufficient financial information. Since IPOs are newly-added to the stock exchange, there is hardly any financial data that can give you insightful indications of its market performance. There are dozens of financial websites you can refer to for historical stock data. You can easily access performance records and price movements of listed stocks through these platforms. IPOs, on the other hand, only have a prospectus that gives you limited information about the risks and opportunities involved in the investments. 

There’s uncertainty over the outcome of an IPO. Generally, investing in IPOs is considered risky. It’s hard to predict the market swings of an IPO. Some IPOs can rise by 50% within minutes of going public, and some IPOs can tank as well. Facebook (NASDAQ: FB) went public in 2012 with a price of $38 per share. The social media stock had dropped to $20 in 6 months of going public. Coca-Cola (NYSE: KO) went public in 1919 at $40 per share. By the end of its 1st year, the beverage stock took a sharp fall and was trading at $19 per share.   

Early Bird Investors Earn More

Many investors have made millions by selling the shares they bought during IPOs. If you’re new to investing, IPOs may not be your best bet. Spotting a profitable IPO requires experience and trading skill but the payoff can be worth the risk.  

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