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How to trade IPOs – a short guide

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Miguel A. Rodriguez
Miguel A. Rodriguez
09 November 2022
As a market participant, there are several things you need to know about how to trade an IPO, including the steps required for the right market approach.

How do companies go public?

In an IPO (Initial Public Offering), the company aiming to go public agrees to the terms of the deal with advisors, stakeholders, and regulators, then plans a roadmap, before finally selling its shares to investors once it is officially listed on a public stock exchange.

This process usually takes time and money, as it involves many different parties, including major investment banks. The large financial institutions such as Goldman Sachs, JP Morgan and Morgan Stanley make substantial money from IPOs.

Before you jump into IPO trading, the experts recommend following some much-needed guidance, starting with learning when your IPOs of interest are scheduled.

Discover their release dates.

First, you need to know when a particular company is going public. For popular companies that went public in the past couple of years, such as #Uber and #Palantir, you will find this piece of information virtually everywhere in the media.

However, for smaller firms, finding their IPO dates might prove tricky. Here at CAPEX.com, we keep you informed with anything IPO-related, including the upcoming IPO dates for many companies that might interest you. Make sure you never miss anything!

Learn more about the company that caught your eye.

After you decided to trade on a specific IPO, you can always try to learn more about it. A good start would be to check its regulatory filings with entities such as the U.S. Securities and Exchange Commission (SEC), responsible for granting IPO approval in the U.S.

When you get to this stage, make sure you consult the *S-1 document to see how the company makes money and plans to generate additional funding from its IPO.

According to Wikipedia, the Form S-1 is a filing document used by companies planning to go public to register their securities with SEC.

As soon as you are done with the legal part, you can move forward and try to answer several critical questions about the IPO you chose to trade.

How liquid is the company and in what sector does it activate?

Checking out the stock’s liquidity and the company’s sector are critical. Volume is also essential when trading IPOs because it shows you how appealing the company is for investors.

In recent years, the market has favoured companies from the fintech industry (see #Slack, #Pinterest, #Zoom, #Lyft and many others which reported significant gains following their public listings).

You will always find all this data available to you here, at CAPEX.com.

How does it fare against its competition? What are its main advantages?

Learning more about your chosen #IPO main strengths can help you develop a clearer overall picture of the entire situation. Informing yourself about the company’s competitive advantages also offers you a glimpse of what to expect for the future.

Final Words

Trading IPOs could be interesting and exciting because it allows you to trade on the first day when your favourite companies go public. However, it is recommended to act with caution, only after you have performed thorough research, and you are confident you put all the missing pieces together.

Source: investopedia.com.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.