Initial public offerings (IPOs) are a great way to find cheap stocks with a high potential for exponential gains. SoFi Invest experts suggest that investors first familiarize themselves with how IPO investing works.
Before any stock appears on the New York Stock Exchange (NYSE), its parent companies get audited for outstanding shares. How many shares get released, or what price gets decided on before the IPO. You’ll then be able to bid for the shares you want publicly.
Start Your Market Research
Never invest in an IPO without first doing some research. In most cases, a business is only as good as its competitors. For example, Pepsi and Coca-Cola are ideal examples. One manufacturer essentially creates a market for the other and vice versa. When something is truly in demand, you’ll rarely find one agency doing it. Instead, research ensures that the public market desires what the IPO company makes. This requires you to uncover competitors while gauging their successes.
Be Picky Regarding the Broker
Confirming the viability of the product or service an IPO stock represents should be followed by finding a suitable broker. As an individual investor, you won’t be able to contact the IPO company directly. Doing so might even negatively qualify as insider trading, which is illegal. Your ideal broker not only has a reputation but is regulated by governing agencies.
Submit an IPO Certification Form
An IPO certification form must confirm that you have no conflicts of interest. Working for the IPO, for example, could disqualify you. This form requirement is made by the Financial Industry Regulatory Authority (FINRA), which regulates brokers and their transactions.
Get a Copy of the Pre-Issue Prospectus
Pre IPO investing is possible as long as the IPO hasn’t yet been issued or activated. The pre-issue prospectus tells investors what they’re buying beforehand. The depth of data needed to make an investment work often calls for you to have ties to the company, but this isn’t likely. Therefore, comparisons and brand resources get displayed along with the following data points:
- Company management: The leaders and how they govern are essential to a business’s success. These details come as part of this analysis package.
- Financial plans: How shares are valued won’t be as straightforward as most think. For this reason, this file gives you a keen understanding of the valuation methods that are being used.
Now Make a Legal Indication of Interest
Placing a conditional offer is how you project the number of shares you want before the initial public offering is made live. Be sure to have the allotted funds to cover your conditional position, yet how many shares you ultimately get is never guaranteed.
Once an IPO is activated, the shares you request are granted at your determined price. Just hold on, for IPOs have the potential of growing thousands of times more than their initial releases.
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