How to trade IPOs for beginners

Where can I find IPO investments?

Several resources can help you track down IPOs. Online IPO calendars list upcoming IPOs across various global stock exchanges. Additionally, our news and insights hub offers updates and expert analyses on major companies about to go public. 

However, remember that IPO investments come with no guarantees of success. We'll illustrate this later in the guide with an example of an IPO that didn't go as planned. The key is to stay informed about which companies are preparing to go public, do your research, and plan accordingly. 

IPO listing: An example 

Uber's IPO in 2019 was highly anticipated. The company, known for its ride-sharing and delivery services, had become a dominant player since its inception in 2009. Available in 69 countries and holding a 65% market share, many expected Uber's IPO to be a resounding success. Initially, the company was valued at USD 120 billion, with expected public share prices ranging between USD 48 and USD 55. 

However, doubts about Uber's profitability emerged as the IPO approached. Despite its revenue, profits were modest, leading underwriters to revise Uber's valuation to between USD 80 and USD 90 billion, and the anticipated share price to USD 44 to USD 50. Ultimately, Uber offered 180 million shares at USD 45 each. On its NYSE debut on 10 May 2019, shares opened at USD 42. 

Though its initial share price was lower than expected, Uber's valuation was still an impressive USD 75 billion, marking it as the largest IPO of 2019 and one of NYSE's biggest. However, the excitement was short-lived as Uber's share price dropped to USD 41.57 by the end of the trading day and fell to USD 26 by June before recovering. This example underscores the unpredictable nature of IPOs – even for large, well-established companies, there's no certainty in how the market will respond. 

How can I invest in an IPO? 

There are two principal methods for trading IPOs at Saxo. You can either join a subscription service to buy shares in the primary market (currently only available in Hong Kong) or wait until the listing occurs and purchase shares on the secondary market. 

IPO subscription service: Buying via the primary market 

For those in Hong Kong, subscribing to upcoming IPOs through SaxoTraderGO and SaxoInvestor is a straightforward process. Here's how it works: 

1. Create a Saxo account: Choose between SaxoTraderGO or SaxoInvestor based on your needs and preferences. 
2. Fund your account: Deposit funds to start trading. 
3. Explore IPO listings: Access the “IPOs” section to see the latest offerings. 
4. Review prospectuses: Analyse the prospectus of each IPO you're interested in. Our insights and opinion pieces can also help you understand upcoming major IPOs. 
5. Subscribe to IPOs: Use the trade ticket option to subscribe, where you can specify the number of shares you wish to purchase and review your order before confirming. 
6. Manage subscriptions: Keep track of your subscription history, including past and active orders, and modify or cancel them if needed before fulfilment. 
7. Receive shares: Successful subscriptions on the IPO announcement day will result in shares being added to your account and listed as open positions. 

Trading IPOs on the secondary market 

The subscription service is not yet available beyond Hong Kong. Therefore, Saxo customers elsewhere can trade IPOs post-listing by following these steps: 

1. Open a Saxo account: Get started by creating your account. 
2. Stay informed: Follow our equity strategists for updates on upcoming IPOs. 
3. Wait for listing: Monitor when an IPO is set to launch and wait for it to hit the secondary market. 
4. Buy shares: Invest in the newly listed company once it becomes available on the market. 

The cost of investing in an IPO? 

Investing in IPO stocks involves certain fees, which vary depending on the market and your location. For instance, trading on the Hong Kong Stock Exchange incurs a fee of 0.005% of the transaction's total value. This fee might differ on other exchanges. Be prepared for a small transaction fee each time you buy or sell shares. 

In addition to transaction fees, there are other potential costs: 

• Broker commission: A fee charged by the broker for facilitating the trade. 
• IPO subscription fee: A charge for subscribing to an IPO. 
• Other fees: Additional charges might apply, such as financing rates if you're using leverage. 

Should I invest in an IPO? 

Investing in IPOs can be rewarding, but it's important to remember there are no surefire successes. It's also crucial to consider whether IPOs align with your investment strategy. For example, if you rely heavily on technical analysis, the lack of historical price data for IPOs might be a limitation.  

Here are some advantages and disadvantages to help you decide if investing in an IPO is right for you: 

Reasons to invest in IPOs 

• Early market advantage: Investing in an IPO might offer the chance to buy shares at a potentially lower initial price. 
• Reputation of established companies: Companies going public often have a proven track record in the private sector, which can offer some insights into their potential public market performance. 
• Access to extensive information: Thanks to the underwriters' efforts, you'll have detailed information about the company, its financial health, and its corporate structure, aiding in informed decision-making. 

Reasons not to invest in IPOs 

• Risk of overhyped stocks: IPOs can generate significant excitement, but the actual market performance might not live up to the initial hype, as seen in the case of Uber. 
• Investing in the unknown: Despite extensive research and available data, investing in an IPO involves inherent uncertainties and risks, as market reception can be unpredictable. 

Invest in IPOs online 

Investing in a company transitioning from private to public can be a potentially lucrative endeavor. However, like all forms of trading, it carries risks and there are no guarantees. The advantage of getting in early can be appealing, but it's crucial to weigh the potential downsides alongside the positives. An informed and cautious approach is key to navigating IPO investments.