Everything You Need to Know About Bidding on IPOs

An IPO, or initial public offering, is the first time a company trades its shares in the market. It’s also known as an initial public offering (IPO). Companies use IPOs to raise capital for their business and make money for investors. An IPO typically involves selling shares of stock at a set price to the public — often at a higher price than the company paid for them.

Typically, investors are interested in learning how to bid for IPO because they believe that the company will be successful and profitable over time. But they also expect that there will be some risk involved with investing in an IPO. Later, when it comes to buying shares of stock on exchanges such as NASDAQ or NYSE, they can then sell those shares at a profit if they’re not satisfied with their investment returns.

How to Bid On Initial Public Offerings

Doing It the Online Way

If you’re interested in how does ipo bidding work, there’s a good chance that you’ll want to do so online. This is because many companies today are offering their shares online — this is the easiest way for them to reach as many investors as possible. You can buy shares of stock at an IPO with the following steps:

Find a company that’s offering its shares for sale on an IPO. This can be done through several websites, including Yahoo Finance or Google Finance.
Search for the company’s ticker symbol and view its profile page. As you do so, look at how many shares are being offered and what their price will likely be once trading begins on exchanges such as NASDAQ or NYSE (if they don’t already have this).
Determine whether you want to buy company shares through an IPO or wait until they start trading on public exchanges. If you’re looking for a quick profit, buying shares at an IPO by learning how to bid for ipo online is your best bet — but it also means that you may need to pay more than what their price will be once trading begins on public exchanges. If you’re looking for a long-term investment, wait until the company starts trading on public exchanges.
If you decide to buy shares at an IPO, contact your online brokerage immediately so they can get in touch with the underwriter responsible for pricing shares and setting their initial offering price. Usually, this is as simple as heading to the brokerage site and buying the shares you want to.

Doing It the Offline Way

Contact your financial advisor and have them tell you about the company’s upcoming IPO and how to bid in IPO.
If your broker or financial advisor doesn’t have access to the stock, contact one that does — but be prepared to pay more than what their price will be once trading begins on public exchanges.
If you want a long-term investment, wait until the company starts trading on public exchanges. The advantage of waiting is that you can get a share at the initial offering price, which might be lower than the price after trading begins. This is especially true for companies that are expected to do well.

How Much Should I Be Bidding on IPOs?

If you are wondering how to bid for IPO the answer to this question depends on how much you’re willing to pay for the stock and its worth. If you’re investing for the long term and expect the company to perform well, then you probably shouldn’t bid above $20 per share. If you’re in it for the short term, you might want to bid slightly higher. You should also remember that if you bid too high, your bid will be rejected. This is the most common reason why people lose out on IPOs.

Why Should I Care About What the Underwriter Is Doing?

The underwriter can affect how many shares are available at the offering price and what that price ends up being. For example, if there are only 10% of total shares available for investors to purchase, then it’s likely that the price will be higher. If many shares are available, the price may be lower. The underwriter can also influence how many shares go to retail investors and how many go to institutional investors (such as mutual funds).

Where Should I Be Bidding for IPOs?

The best place to bid for IPOs is on the NYSE. This is because it’s the largest stock exchange in the world, and most companies that go public want their shares to trade there. The NYSE has several different boards or markets where stocks can be bought or sold. Some of these include:

The primary market, is where companies issue new shares for sale for the first time.
The secondary market, which is where shares of companies that are already public can be bought and sold. (This is also called the “aftermarket” or “exchange”).
The OTC market, which stands for “over-the-counter, ” refers to any kind of trading not done on an exchange.

The OTC market can be further divided into two subgroups:

The Pink Sheets, which is where companies that are delinquent in their financial reporting are listed if they have fewer than 100 shareholders.

Also Read: Complete Guide about What is an IPO

The “OTC Bulletin Board,” which is where publicly traded companies with more than 100 shareholders but less than $10 million in assets can list their shares. The OTCBB is also a place where anyone can go to buy and sell shares in companies that aren’t trading on an exchange. The OTCBB is not overseen by the SEC. Still, it does have rules about how the companies are listed, which include requirements for financial reporting, shareholder disclosure, and software trading requirements.

Tips to Follow When Buying Shares of an IPO for the First Time

Buying shares in an IPO is a fascinating time. You’ve just made a large investment and can’t wait to get your hands on the company’s stock. But before you buy, there are a few tips to follow:

Research the company thoroughly. Be familiar with the company’s financials, track record, and where it is headed in the future.
Know what your investment will be worth when it goes public. For example, if you have $10,000 to invest and the price is expected to rise by 10% on day one of trading, then you should buy at least that much more than that to ensure that you’ll make money over time (assuming there are no fluctuations).
Consider buying only if you believe in the company’s prospects for growth — not just because it’s been hyped up by Wall Street analysts or celebrities.
Do not buy until after the market opens and before trading begins.
Never trade on margin (with borrowed money) unless you know exactly what you’re doing.

The Takeaway

If you’re interested in being a day one buyer of an IPO, you must understand the process and prepare for what comes next. While luck does play a factor in whether or not you will win a bid on an initial offer, acting early and understanding your position will give you the best chance to get in at the ground level.