How to trade IPOs – a short guide

How to trade IPOs – a short guide

As a market participant, there are several things you need to know about how to trade an IPO, including the steps required for the right market approach.

How do companies go public?

In an IPO (Initial Public Offering), the company aiming to go public agrees to the terms of the deal with advisors, stakeholders, and regulators, then plans a roadmap, before finally selling its shares to investors once it is officially listed on a public stock exchange.

This process usually takes time and money, as it involves many different parties, including major investment banks. The large financial institutions such as Goldman Sachs, JP Morgan and Morgan Stanley make substantial money from IPOs.

Before you jump into IPO trading, the experts recommend following some much-needed guidance, starting with learning when your IPOs of interest are scheduled.

Discover their release dates.

First, you need to know when a particular company is going public. For popular companies that went public in the past couple of years, such as #Uber and #Palantir, you will find this piece of information virtually everywhere in the media.

However, for smaller firms, finding their IPO dates might prove tricky. Here at CAPEX.com, we keep you informed with anything IPO-related, including the upcoming IPO dates for many companies that might interest you. Make sure you never miss anything!

Learn more about the company that caught your eye.

After you decided to trade on a specific IPO, you can always try to learn more about it. A good start would be to check its regulatory filings with entities such as the U.S. Securities and Exchange Commission (SEC), responsible for granting IPO approval in the U.S.

When you get to this stage, make sure you consult the *S-1 document to see how the company makes money and plans to generate additional funding from its IPO.

According to Wikipedia, the Form S-1 is a filing document used by companies planning to go public to register their securities with SEC.

As soon as you are done with the legal part, you can move forward and try to answer several critical questions about the IPO you chose to trade.

How liquid is the company and in what sector does it activate?

Checking out the stock’s liquidity and the company’s sector are critical. Volume is also essential when trading IPOs because it shows you how appealing the company is for investors.

In recent years, the market has favoured companies from the fintech industry (see #Slack, #Pinterest, #Zoom, #Lyft and many others which reported significant gains following their public listings).

You will always find all this data available to you here, at CAPEX.com.

How does it fare against its competition? What are its main advantages?

Learning more about your chosen #IPO main strengths can help you develop a clearer overall picture of the entire situation. Informing yourself about the company’s competitive advantages also offers you a glimpse of what to expect for the future.

Final Words

Trading IPOs could be interesting and exciting because it allows you to trade on the first day when your favourite companies go public. However, it is recommended to act with caution, only after you have performed thorough research, and you are confident you put all the missing pieces together.

Source: investopedia.com.

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