How to invest in an IPO

One of the most popular stories in business news is when a company announces that it will launch an IPO.

An IPO (Initial Public Offering) is the process by which a private company goes public for the first time by selling shares of their company to investors on a stock exchange.

An IPO can give ordinary investors the chance to buy a piece of a company that they like and reap the benefits of any future potential profit and growth.

It’s not just exciting for ordinary investors, either. An IPO can offer early (pre-IPO) investors and employees with stock the chance to profit by selling their shares on the open market.

There are a number of different reasons why companies might choose to go public. Companies usually tend to go public as a way to raise capital to expand their business without incurring debt.

Stock exchanges are an efficient way to buy and sell equities. Essentially, by being publicly traded, companies make it easier for investors to buy and sell shares of the company. This can offer early investors the opportunity to sell their stake in the company, as well as the opportunity for retail and institutional investors to purchase shares in the company. It can also make it easier for funds to be raised by offering more shares to investors.

Once a company is publicly trading on an exchange, the process is as simple as placing an order on your trading platform.

If you’re just making your first trade, you can learn more about this process with our video on how to make a trade.

While you’ll often first hear about IPOs on the news, the news might not give you all the information you’re looking for about a particular IPO.

A good source for additional information about an IPO is the Investor Relations department for the company you’re interested in. Companies that trade publicly (or want to do so) need to be transparent about their business, so you will often find information about a potential IPO on the company’s website under the investor relations section.

However, there can sometimes be slight delays, which can lead to IPOs not being available as soon as the market opens on the launch day.

There are a few ways that you can address these delays and start trading on the first day a new security is offered:

• Set a limit order: This gets your order in line for processing at your specific set price. Unfortunately, if the IPO’s price jumps when the market opens, it might surpass your limit order price without triggering it.
• Watch the market data for the IPO: If you have real-time market data, you can simply look up the security and watch until it starts trading.
• Set a price alert for the first trade above $0.01: With Questrade Plus you can set custom trade alerts to proactively inform you when a security trades above a certain threshold. By setting the alert at $0.01, you will receive an alert when the first trade goes through at any price.

Once you’re aware that a particular IPO is trading live on an exchange, you can then make the decision on whether or not to purchase it.

Questrade sometimes has access to IPOs before they launch, and we provide that access to our customers via our IPO Centre. Customers interested in participating in an IPO must commit to purchasing at least $5,000 of the security.

Please note: Questrade allocates shares based on the total allocation we receive from the underwriter of the IPO. This means that if a particular IPO is oversubscribed, you might not receive the full number of shares you requested.

Our IPO Centre can also give you access to a wide range of other Canadian investment options, including:

Secondary Offerings for Canadian Equities

• Large cap
• Min cap
• Small cap

Fixed income

• Corporate Bonds: blue chip, investment grade, and high yield
• Hybrid: convertible bonds, preferred shares, and master limited partnerships

Structured notes

• Equities (Individual stocks and indices)
  • Principal protected notes
  • At risk notes (your principal is not guaranteed)
• Hybrid (Fixed income, commodities, and other investment sectors)
  • Principal protected notes
  • At risk notes (your principal is not guaranteed)

If you want to stay informed about upcoming IPOs and other equities we’ll be offering in our IPO Centre, you can subscribe to our IPO Bulletin.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.