How to invest in an IPO (Initial Public Offering):
An initial public offering (IPO) gives the investing public an opportunity to own and participate in the growth of a formerly private company. By their nature, however, IPOs can be risky and speculative investments. Consequently, it is important that you fully understand all of the information contained within the prospectus relating to the specific investment you are considering. In reviewing the prospectus, please pay particular attention to the “risk” factors section as it is there for a reason.
Please keep in mind that this post is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon for legal or investment advice. If you have any questions concerning the contents of this post, please contact a qualified professional.
There are two ways the general public can invest in a new public company. First, if you are a client of an underwriter involved in the IPO, you may be offered the opportunity to directly participate in the IPO. In this instance, you will be able to purchase the shares at the offering price. It is often the case that underwriters and dealers will distribute most of the shares in the IPO to their institutional and high net-worth clients, such as mutual funds, hedge funds, pension funds, insurance companies and high net-worth individuals. For the typical investor, being able to directly buy in a popular IPO is a unique opportunity.
The other way, which is more common in the case of individual investors, is to purchase the shares when they are resold in the public market in the days following the IPO. An investor could place an order with his or her broker to purchase shares in this manner.
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