How to trade an IPO

IPO trading involves speculating on a company’s share price movements when it lists on a stock exchange. Use this guide to learn how to trade IPOs, including how you could gain exposure to a company before it lists with IG's exclusive grey markets.

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How can you trade an IPO?

With IG, you can trade an IPO both before and after the listing:

Pre-IPO grey market

If there is a lot of interest in a particular company pre-IPO, we may offer a ‘grey market’ – enabling you to speculate on a company’s share price before the listing. If we offer a grey market, the price will be based on our prediction of the company’s market cap at the end of its first trading day.

  • You’ll ‘buy’ (go long) if you think the market cap will be higher than the price shown
  • You’ll ‘sell’ (go short) if you think the market cap will be lower than the price shown

After the IPO: buying or trading the stock

Once the company has listed, you can speculate on share price movements by CFD trading and spread betting, or you can buy shares outright by share dealing. In other words, you can get exposure to shares in the same way as you would with any other shares listed on the stock market.

Learn how IPOs work

The IPO process starts long before the shares list on an exchange, First, a company has to make the decision to go public. This is followed by a financial audit of the business and a registration process. The news of an upcoming IPO will be released a few months or so before the planned listing – giving you some time to study a company’s financials and decide whether to you want to trade its shares.

Choose an IPO to trade

There are hundreds – even thousands – of UK, US and international IPOs to trade every year. Find out more about upcoming IPOs or sign up to our exclusive mailing list to find new IPO stocks. By subscribing, you will receive updates on any changes to expected IPOs, as well as news on upcoming listings.

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Decide whether to trade derivatives or buy shares

If you want to trade IPOs, you can choose between owning the physical shares of a company or trading the share price via derivatives (CFDs or spread bets). Share dealing enables you to buy and own shares, while derivatives trading enables you to speculate on price movements – positive or negative – without owning the underlying shares.

Many traders choose derivatives because you can open a position with a small deposit (margin). This can magnify profits and losses, as both will be calculated from the full exposure of the trade, not just the margin you put up as deposit. Derivatives also offer various tax benefits,1 and the flexibility to go long or short.

If you invest in a company’s shares instead, you’ll need to put down the full value of the position up front. Any rise or drop in the share price will reflect in your share dealing account, and IG will pay any dividends due to you. You’ll also get shareholder voting rights.

With IG, you can buy US shares commission-free and UK shares from as little as £3.2 You won’t find another provider with these rates and our 45-year heritage.

Open an IG account

You can open an IG account in just a few minutes. Create a live trading account if you want to start trading CFDs or spread betting straight away, or open a demo account if you need some practice. If you’re interested in buying stock rather than trading, open a share dealing account.

Build your IPO trading plan and strategy

A good trading plan and risk management strategy will provide guidance on how to find opportunities, and when to take profits and cut losses. There are several ways you can minimise your risk, which include attaching stops to your positions. Stops will close your trade at a certain level if the market moves against you, minimising your losses.

To learn more about trade planning and risk management, join IG Academy. Here, you can develop your knowledge on all things trading with free online courses, webinars and seminars.

IPO trading strategies

While there are many different IPO trading strategies, some of the key approaches traders and investors turn to include:

  1. Choosing IPOs with respected underwriters
  2. Finding breakouts
  3. Waiting for the lock-up period to end

1. Choosing IPOs with respected underwriters

Larger underwriters, such as major investment banks, have a reputation for delivering better quality IPOs. Stronger underwriters are also said to be choosier about which companies to take public. In turn, the share price may be more likely to rise in the short term due to the underwriter’s solid reputation.

2. Finding breakouts

Some shares don’t show any significant movement immediately following an IPO, and it can take some time for the share price to ‘break out’ of a support or resistance level. You could wait for the breakout before speculating on share price movements via derivatives.

3. Waiting for the lock-up period to end

IPO shares are often subject to a ‘lock-up’ period. These can last up to six months and mean that existing shareholders cannot sell their shares immediately after a listing. If you notice that they are holding on to shares after this period, it could mean that shareholders think there is potential for growth and it’s time to buy.

Open your first IPO position

Once you’re ready to start trading or buying shares, you can open your first IPO position. With IG, you’ll benefit from leverage when trading and you can buy shares from as little as £5 commission.2 Remember to follow your trading plan and monitor your positions closely.

FAQs

Yes, you can make money trading initial public offerings if you correctly predict share price movements using CFDs or spread bets. With IG, you can do this pre-IPO through a grey market, or after the IPO by speculating on the company’s share price. You could also profit from an IPO if you buy shares outright via share dealing and the share price goes up.

You can trade an IPO before the listing and after the listing. If there is a lot of interest in a particular IPO, IG may offer a ‘grey market’ before the IPO is held. This means you can speculate on a company’s share price before it lists. The grey market price will be based on our prediction of the company’s market capitalisation at the end of the first trading day. Once the company has listed, you can speculate on share price movements via CFD trading and spread betting, or you can buy shares outright via share dealing.

IPO shares – the shares acquired by investors before the listing – are often subject to a ‘lock-up’ period. These can last up to six months and mean that private investors who held shares prior to the IPO cannot sell their shares immediately after a listing. However, the general public won’t be affected by lock-up periods, as they exist mainly to prevent those who acquired shares before an IPO from immediately selling the stock.

Develop your knowledge of financial markets

Find out more about a range of markets and test yourself with IG Academy’s online courses.

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1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2 Trade in your share dealing account three or more times in the previous month to qualify for our best commission rates. Please note published rates are valid up to £25,000 notional value. See our full list of share dealing charges and fees.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.