Initial Public Offerings (IPOs) offer exciting opportunities for investors to buy stock in a company as it goes public for the first time. Many investors aim to purchase shares on the very first trading day, hoping to get in early and ride the stock’s growth. However, buying IPO stock on the first trading day can be competitive and requires planning. This guide will walk you through how to buy IPO stock on the first trading day, using examples like Airbnb (ABNB) and Snowflake (SNOW) to illustrate the process.
Understand How IPOs Work
Before diving into how to buy IPO stock, it’s essential to understand how an IPO works. When a company goes public, it offers shares to institutional investors and certain retail investors before the shares are made available to the public on the stock exchange.
On the first trading day, the stock opens for public trading, and investors can buy and sell shares like any other publicly traded stock. The stock price on the first day can be volatile due to high demand.
Example: Airbnb (ABNB)
When Airbnb went public in December 2020, its IPO price was set at $68 per share. However, on the first trading day, the stock opened at $146 per share, showing a significant price jump.
Open a Brokerage Account
To buy IPO stock on the first trading day, you need to have an account with a brokerage that allows you to trade stocks. Most online brokerages offer access to IPO stocks on their platforms.
Popular platforms like Robinhood, TD Ameritrade, E*TRADE, and Fidelity allow retail investors to buy IPO stocks. Ensure your brokerage platform is ready for the day you plan to make the purchase.
Example: Snowflake (SNOW)
In 2020, Snowflake’s IPO was highly anticipated. While the IPO price was set at $120 per share, it surged to $245 on the first day of trading. Investors who had their accounts set up early with brokerages were able to buy shares as soon as they became available.
Stay Informed: Know When the IPO Will Start Trading
IPO stocks generally start trading mid-morning, after the IPO price has been finalized. It’s essential to stay informed and keep an eye on the stock's launch time, as delays are common.
The NASDAQ and New York Stock Exchange (NYSE) both release the IPO calendar in advance, and platforms like Yahoo Finance and CNBC provide real-time updates.
Pro Tip: Set alerts on your brokerage app or financial news platform so that you’re notified as soon as the stock starts trading.
Decide How Many Shares to Buy
When buying IPO stock on the first trading day, the price can fluctuate rapidly. Decide how much you’re willing to invest and how many shares you want to buy. Be prepared for potential volatility and large price swings.
For instance, Snowflake’s stock surged by 130% on its first trading day, while Airbnb’s stock rose by 112%. These sharp movements illustrate how critical it is to plan your purchase carefully.
Place Your Order
Once the IPO stock starts trading, you can place your order via your brokerage account. You’ll typically have two options for buying stock:
- Market Order: This will execute your purchase immediately at the current market price.
- Limit Order: This allows you to set the maximum price you’re willing to pay for the stock. The order will only execute if the stock price hits your specified limit.
Example: Robinhood’s IPO (HOOD)
Robinhood itself went public in July 2021. Investors who placed market orders saw the stock price rise quickly. Those who set limit orders were able to control the price they paid, but some missed out on buying if the stock price didn’t fall to their limit.
Monitor the Stock Performance
After purchasing IPO stock, it’s crucial to monitor the stock’s performance throughout the day. IPO stocks are notoriously volatile on the first day, and prices can swing dramatically.
Keep an eye on your brokerage platform or financial news to stay updated on the price movement, as you may want to adjust your investment strategy.
Evaluate Your Investment Goals
Buying IPO stock on the first trading day can be exciting, but it’s important to evaluate your long-term goals. Are you looking for a quick gain or a long-term investment? The answer to this will help you decide whether to hold the stock or sell it after it rises (or falls) in price.
Final Thoughts
Investing in IPO stocks on the first trading day presents both opportunities and risks. By preparing your brokerage account, staying informed about the IPO, and making smart decisions on how many shares to buy, you can position yourself to take advantage of this exciting market event.
Stocks like Airbnb (ABNB) and Snowflake (SNOW) are prime examples of how IPOs can deliver high returns on the first trading day. With the right strategy, you can make the most out of your IPO investments in 2024.
