Investing In Ipos With Fidelity: A Step-By-Step Guide

Investing in an IPO can be a risky but exciting move. While there's a chance that the stock will grow in value and leave you handsomely rewarded, there's also the possibility that its shares will flop upon market debut. Before investing, it is important to understand how the process of trading IPO securities differs from ordinary stock trading, along with the additional risks and rules associated with IPO investments. When a private company first sells shares of stock to the public, this process is known as an initial public offering (IPO). In essence, an IPO means that a company's ownership is transitioning from private to public ownership, or going public.

If you're trying to figure out how to get hold of a new issue, you can buy an IPO stock by talking to your brokerage. To purchase stock through an IPO, you must work directly with a registered stockbroker. Private offering shares may also be available, although acquiring them may require direct contact with the company's representatives.

Fidelity is one of the big discount brokers that offer access to at least some IPOs. To be eligible, customers must have at least $100,000 with the broker and be a premium or private client group customer.

Eligibility requirements for investing in an IPO through Fidelity

To be eligible to invest in an IPO through Fidelity, you must meet at least one of the following requirements:

• Have either $100,000 or $500,000 in household assets, excluding institutional or annuity assets such as 401(k) and 403(b) plans, and annuity contracts. The required amount depends on the IPO.
• Be a Premium or Private Client Group customer.

Additionally, you must have at least $2,000 in cash or fully paid securities in the account you use to enter an indication of interest. This is the minimum amount required to participate in an IPO through Fidelity. It is important to note that not all customers who request to participate in an IPO will have the opportunity to do so, as the demand for new issues may exceed the supply. In such cases, an allocation method based on a formula using a customer's assets, revenue, and tenure may be used.

Before investing in an IPO, it is crucial to understand the risks associated with public offerings, such as unproven management and substantial debt in established companies. Customers should carefully read the offering prospectus and determine if the investment aligns with their objectives, financial situation, and risk tolerance.

How to request a certain number of shares in the IPO

To request a certain number of shares in an IPO, you must first have an account with a broker. Each broker will have different requirements for participation, so it is important to review these before proceeding. For example, some brokers require you to be a U.S. resident, have an active account, and complete a questionnaire to determine eligibility.

Once you have confirmed your eligibility, you can begin the process of requesting shares. First, find an IPO that interests you and select "I'm interested". Review the checklist and confirm your eligibility, and be sure to read the company's prospectus to understand the potential risks involved.

After you have reviewed the relevant information, you can select "Request shares". At this point, you will need to enter the details of your request, including the number of shares you wish to purchase. It is important to note that your request does not guarantee that you will receive the allocation of shares you have requested. The number of shares you receive may be lower than requested, or you may not receive any shares at all.

When submitting your request, you will be creating a Conditional Offer to Buy (COB). A COB is similar to a buy order, but it remains pending and does not become an active order until the IPO is priced and set for the initial public offering. You can edit or cancel your COB until the end of the confirmation window, after final pricing.

To ensure your COB turns into an opportunity to purchase shares, the following must occur:

• The SEC must declare the company's registration statement effective.
• The final offering price must be within the price range at the time you submitted your COB.

If you are allocated shares, your COB becomes an order, and you will purchase those shares. If you do not receive any shares or only receive a partial allocation, any extra funds that were on hold will be returned to you.

What to do when you are notified that the offering is going forward

Once you are notified that the offering is going forward, you will be given a deadline to place your order. You will not know for certain if you have been able to buy any shares until after you have placed the order. However, you will not end up buying more shares than you have asked for, and you will not have to buy at a price higher than the one you have offered.

If you have been allocated shares in an IPO, you are free to sell them whenever you deem appropriate. However, many firms will restrict your eligibility to participate in future offerings if you sell within the first several days of trading. This practice is known as "flipping", and it is discouraged by most brokerage firms.

It's important to remember that there is no guarantee that a stock will continue to trade at or above its initial offering price once it starts trading on a public stock exchange. Historical data shows that annual returns on IPOs have varied widely from one year to the next.

How to buy IPO stock at its offer price

An IPO, or Initial Public Offering, is when a private company offers its shares to the public for the first time. This is often a unique opportunity for investors to get in on the ground floor of a company and potentially see massive returns.

How to Buy IPO Stock at the Offer Price

It is possible for retail investors to buy IPOs at the offer price, but it can be challenging. Institutional or accredited investors often have the upper hand in getting most IPO shares, especially if the IPO is highly anticipated.

• Work with a registered stockbroker: You must work through a registered stockbroker to purchase IPO stock. If the company is not yet public, you can contact the investor relations representative to inquire about shares for sale in a private offering.
• Prove eligibility: Your brokerage will likely have restrictions on who can invest in IPOs. For example, you may need to be a U.S. resident, have an active account, and complete a questionnaire to determine eligibility.
• Request a certain number of shares: You may not be allocated all the IPO shares you request, but you will not end up buying more shares than you have asked for.
• Place your order: On the evening the IPO "prices," your broker will notify you that the offering is going forward, and you will be given a deadline to place your order.
• Understand the risks: Investing in an IPO is risky. While there is a chance the stock can grow in value, there is also the possibility that its shares will flop upon market debut.

Other Considerations

• Dutch auction IPOs: A Dutch auction IPO is a type of initial offering that gives retail investors a better chance of getting shares. Bids start at the highest asking price and are lowered until the lowest bidding price is reached.
• Brokerage access: Your chances of getting IPO shares increase when you trade more and have a higher account balance. Brokerages like Fidelity have relationships with firms that provide investors access to IPOs, but you must meet certain asset requirements.
• Flipping: Many firms will restrict your eligibility to participate in future offerings if you sell your IPO shares within the first several days of trading, a practice known as "flipping."

How to buy pre-IPO stock

An IPO, or Initial Public Offering, is when a private company offers its shares to the public for the first time. This process is also known as "going public". Startups or long-established companies can decide to go public through an IPO to raise capital, pay off debts, fund growth initiatives, or raise their public profile.

There are a few ways to buy pre-IPO stock:

• Contact the company directly: If the company is not yet public, you can go to its website and call the investor relations representative. They will be able to tell you if shares are for sale in a private offering and at what price. If shares are available, the representative will direct you to the firm's broker-dealer to complete the sale by wiring funds to the firm.
• Work with a registered stockbroker: You must work through a registered stockbroker to purchase stock through an IPO. If you want to purchase stock at the IPO or afterward, register with a stockbroker and wire funds to your brokerage account. When the IPO occurs, call your broker or go online, enter the stock symbol of the company, and purchase the amount of stock you want.
• Use a marketplace: There are now marketplaces, such as Forge, that allow investors to buy shares in private companies.
• Buy pre-IPO placements: Companies sometimes do pre-IPO placements of stock at a discount to the IPO price to ensure funding and offset the risk of a disappointing offering. These placements are typically sold to institutional investors and high-net-worth individuals.

Things to Keep in Mind

• Risk: Investing in an IPO is risky. While there is a chance the stock can grow in value, there is also the possibility that its shares will flop upon market debut. IPO stocks tend to underperform the market for several years after they go public.
• Eligibility: Brokerages generally have some restrictions on who can invest in IPOs. For example, you may need to be a U.S. resident, have an active account, and complete a questionnaire to determine eligibility.
• Price: You won't know the IPO price before you offer to buy, although you can set a limit order. The final offer price is often decided the night before shares begin trading.
• Flipping: Many firms will restrict your eligibility to participate in future offerings if you sell your IPO shares within the first several days of trading. This practice is known as "flipping" and is discouraged by most brokerage firms.

How to Set Yourself Up for Success

Pam Krueger, founder and CEO of Wealthramp, recommends balancing expectations with reality and having a strategy before investing in IPO shares. It's important to do your research and be aware of the risks involved in investing in an IPO.

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