How to buy IPO stocks online

Navigating the IPO process can be challenging if you lack prior knowledge of stocks and shares. Therefore, conducting extensive research or seeking expert guidance for a successful financial endeavour is crucial. With this comprehensive article, deciphering the IPO process should no longer pose a challenge.

This article outlines the basic concepts to understand before you buy IPO stocks, including reasons to trade stocks from listed companies, tips for purchasing IPO shares, and a guide on how to buy IPO stocks online.

Basic concepts before you buy IPO stocks

As a beginner trader planning to buy IPO stocks, one must understand the difference between stocks and shares, the reason behind companies’ decision to go public and the range of shares companies can offer.

Without a solid understanding of these concepts, you might face challenges in your trading endeavours. So, read, learn and be amazed at how things work in an IPO process.

What are stocks and shares?

Stocks and shares are not exactly the same thing. Stocks mean you own a portion of an entire company. Shares are units of ownership that you can buy, keep, or sell. For instance, you own a stock of ABC company by purchasing 20 of their shares.

Why do companies go public?

An IPO (Initial Public Offering) is the first period in which the general public can buy shares in a privately listed company. This pivotal moment marks a significant transition in a company's financial journey.

The primary purpose of an IPO is to allow early investors to sell their shares, providing them with an opportunity to realise their financial returns. An IPO effectively concludes a particular phase in a company's life cycle, potentially opening the door to new opportunities or fresh ventures.

Each company's decision to go public is unique and driven by a combination of factors and specific growth and funding needs. Here are several other reasons why a company choose to go public:

• Companies want to expand their business, fund research and development or pay off debt.
• Public selling of shares showcases the company’s financial strength and growth potential. It makes the company a more attractive target for strategic partnerships or collaborations.
• A privately listed company may not want to raise capital with expensive venture capitalists, private placement, and bank loans. These entities may demand a high-interest rate or capital return. Therefore, companies resort to selling shares to the public to make more use of funds with less income payments to traders.
• IPO sets the stage for long-term access to financial markets. It makes it easy for companies to raise additional funds as needed to support their growth and strategic initiatives.

How many shares are required to start an IPO

No fixed minimum or maximum number of shares is needed to initiate an IPO. The number of shares a company needs to start an IPO can vary widely depending on factors:

• Company's valuation: It refers to the estimated worth or value of the company. A company with a higher valuation might attract more investor interest and potentially raise more capital during the offering.
• Financial needs: If a company requires substantial capital to fund its expansion, research and development, debt repayment, or other strategic initiatives, it may opt for an IPO to raise the necessary funds. The company's specific financial requirements often drive the decision to go public.
• Size of the offering: It refers to the number of shares being made available to the public during the IPO. It is typically measured in terms of the total dollar value of the sold shares.
• Share price IPO: The share price should ideally balance being attractive to investors and meeting the company's capital-raising goals.

Small companies may offer you a more significant percentage to raise their capital. On the other hand, more established companies may offer a lower rate of company shares in public to maintain control and limit ownership.

4 reasons to consider buying IPO stocks

Trading in an IPO can offer several potential benefits. Here are the reasons to consider buying IPO stocks of a company:

1. Early access to startup companies

Traders buy IPO stocks for early access to start-up companies with high growth potential. You can trade IPO stocks online through contract of difference (CFD) trading platforms. In this type of trading, you will be speculating the price of your chosen indices without having an actual asset.

You can receive a potential high-profit percentage quickly if you’re good at recognising a company’s future. A market trend analysis and thorough research about the company you want to buy IPO stocks will make you a good CFD trader.

2. Transparent IPO prices

CFD traders buy IPO stocks because of the guaranteed security mentioned in the IPO order document. You can get all access to information, no matter the amount you have traded.

You can also track IPO results when you search the price of an IPO at markets.com.

3. Lucrative source of wealth

A good reason to buy IPO shares is it helps you create wealth in the long term by trading in valuable CFD stocks of top-performing companies.

You will have an opportunity to build wealth through selecting high-quality stocks and trading at competitive prices.  CFD stocks traded after the company’s IPO will cost you much more than pre-IPO. This is due to market demand and limited supply.

4. Pre-IPO stocks are less in cost

Pre-IPO stocks of a company will allow you to acquire shares at a lower valuation compared to what the public market might assign post-IPO. This is because pre-IPO shares are typically sold at a discount to early-stage investors, and as the company progresses towards going public, the demand for its shares tends to increase, leading to higher valuations.

5 tips before you buy IPO stocks

CFD traders know these tips before they buy IPO shares of a company. Learn and adapt so you can avoid risk in trading.

1. Understand the listed company

Traders must buy an IPO from a listed company with an IPO trade mark. By doing so, traders can ensure that they are investing in legitimate companies that have met all the necessary regulatory requirements and have been approved to go public. This extra level of due diligence can avoid falling victim to fraudulent schemes.

CFD traders should assess the products or services a listed company offers. It should be clearly stated in the legal document of the company. This is to determine the underlying value and potential growth of the company’s stock.

You must also identify the estimated size of the opportunity and the company’s ability to capture market share. The company’s ability to capture market share often reflects its competitive advantage. A strong competitive position can lead to sustained growth and better stock performance.

2. Research the listed company’s management

You must buy IPO stocks from a company with a good track record of management. The legal document lists the people in charge of the company.

A skilled director and managers can identify, assess, and mitigate risks. You will feel safe trading their stocks in CFD platforms as these experienced business leaders can protect the company’s interests and ensure long-term stability.

3. Know the reason why a company goes in public

Before you buy IPO shares of a listed company, know the primary reason they are listed in the public market. Companies putting the funds raised in a strategic plan to expand a business will have a more significant advantage than those who only seek to fuel regular business operations.

Growth initiatives will likely have a long-term outlook and provide more stable capital returns.

4. Conduct a company valuation

Traders often analyse a company's share price IPO as a crucial indicator. A higher share price may suggest the company has ambitious long-term projects for the capital raised.

This, in turn, can ensure that the company has a well-thought-out plan for the strategic allocation of funds, outlining precisely when and where the capital will be deployed to achieve its growth and expansion goals.

However, other factors may influence why companies have an expensive share value. Traders may see if a company is valued by comparing similar companies with their growth potential and management.

5. Find a reliable broker

Prominent brokers that follow strict regulatory standards and ensure you’re trading in legitimate IPOs. This reduces the risk of falling victim to scams or fraudulent offerings.

Buying your first IPO stock

Traders buy IPO stocks by establishing a brokerage account on trading platforms. One convenient option is to acquire IPO stocks through one of the best CFD trading platforms available online. These platforms offer traders the opportunity to participate in IPOs, enabling them to capitalise on potential market opportunities and investment prospects.

It's important to -enote that some IPOs may impose strict specific eligibility criteria for traders, including requirements related to trading intentions, net worth or income thresholds.

Additionally, traders participating in IPOs must adhere to stringent regulations and ethical guidelines that aim to prevent insider trading, market manipulation, and unfair trading practices. Compliance with these regulations is crucial to maintain the integrity and fairness of the financial markets while ensuring a level playing field for all participants.

After you have met and complied with the abovementioned requirements and responsibilities, you can now request, gain access, and buy IPO stocks you want through CFDs.

Read these tips about risks in trading: Know the risks. Know yourself. Why trading psychology is important

Join our trading community and create a demo account to practise trading on IPO stocks with virtual funds today.

You might also like to read: How Do Shares CFDs Work? A Comprehensive Guide for Beginners

When considering "CFD IPOs" for trading and price predictions, remember that trading CFDs involve a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.