If you pay attention to the stock market, you know that there is one event that is of particular interest to investors, both retail and commercial; the IPO.
Initial public offerings are when privately held companies decide to go public. They open the door for investors everywhere to buy shares of the stock.
So rather than the company owned by a small number of individuals, anyone who purchases stock becomes a shareholder and now owns part of the company.
But what time do IPOs start trading? Everyone knows that the best time to buy that stock is the moment that shares are sold on the market. If the public believes in a particular company, stock prices have the potential to surge, creating opportunities to earn impressive gains for both traders and long-term investors.
Keep reading to learn more when you can get your hands on IPO stocks at the most opportune time.
When do IPOs Take Place?
Most privately-owned companies wait until they reach a valuation of $1 billion, which is commonly referred to as unicorn status. There are some companies who are able to proceed with an IPO before then, however.
In the US, in order to qualify for an IPO and sell shares to the public, a company must meet strict regulations set by the Securities and Exchange Commission (SEC).
To begin the process and determine the initial stock price for the IPO, a company will work with underwriters to handle the process. This is an intense process requiring due diligence, filing, issuance, and marketing the IPO ahead of time.
The underwriters will determine how long it will take to launch an IPO. The process can take months, as a company will need to undergo internal changes long before the IPO can take place. Most companies expect the IPO process to take between four and six months, though it's not uncommon for it to take nine months or longer.
Once a company announces its IPO date, you better mark it on your calendar. In the weeks preceding this date, the company will head out on a roadshow, advertising their IPO and meeting with institutional investors to gauge demand.
Their goal is to vastly oversell the number of shares they have, to increase the price.
But IPO launch day is only half the information. What time do new IPOs start trading? It's the time of day that will most affect your ability to get in at the best price.
What Time Do IPOs Start Trading?
So what time do IPO stocks start trading? In the US, stock exchanges including the New York Stock Exchange and the NASDAQ open for trading at 9:30 (UTC-5). But stock shares for the new IPO aren't available for purchase when the trading floor opens up for the day.
It takes a few hours before the shares of the IPO company are available to retail investors. This is due to the price discovery phase, handled by a designated market maker (DMM).
The DMM works with the IPO company on launch day to gauge demand against their supply, and to finalize the initial listing price. During this phase, a price range is given for the new stock.
Once the price is finally locked in, the stock is released onto the open market allowing investors to buy it up.
But there is no exact hour or minute set as to when the shares will be available. It varies for each IPO. In the US, shares are usually made available between 10:30 AM and 12:00 PM, about two hours after the trading session has begun.
So when trading IPOs, what time should you log in to your chosen exchange? If the initial entry price is important to you, plan to be ready all morning. If not, you'll have to purchase later in the day as the price rises.
Where Can You Buy IPO Stocks?
In the US, most companies will list their IPO shares on either the NYSE or the NASDAQ. Choosing an exchange is up to the IPO company.
You'll need to have a trading account set up on an exchange that has access to these stock exchanges. Many brokerages will allow you to purchase IPO stock at its initial price once it's available, but not every broker will.
Research ahead of time if your current broker enables this functionality, otherwise, create a new account elsewhere well before the IPO date.
Benefits of Buying IPO Stocks
One of the biggest benefits of investing in stocks from IPOs is that they are discounted to encourage early sales. So if you anticipate the share price to increase in value over the course of days, weeks, or months, buying in at a discount can ensure larger gains.
Whether you plan to hold the IPO shares for years as part of your portfolio, or you plan to sell shortly after purchasing for a quick gain, IPO volatility and rapid price surges are exhilarating. Plus, many will offer dividends, which can be lucrative if you hold your shares long enough.
Beware the Lock-Up Period
Much of the time, share prices will surge in the initial weeks or months following an IPO. But there comes a time when the price suddenly dips.
This is due to the expiration of the lock-up period. When launching an IPO, insiders, such as employees or officers, often have to wait at least 90 days before they can sell their shares. 180 days is a common lock-up period.
As soon as the expiration period is reached, these shareholders tend to sell off their stock in droves to capitalize on big gains. When buying into an IPO, be sure to research the lockup period to anticipate future price moves, as this can tell you when to sell and when to buy the dip.
Boosting Your Portfolio With IPOs
So what time do IPOs start trading? Shares of US companies usually go public in the first few hours of the trading day, based on the EST time zone (UTC-5).
There's no exact timeframe, so investors looking to get in on the ground floor need to be ready at any moment of the launch date. Doing so can set up for long-term wealth or short-term gains.
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