What Is an IPO?
Knowing how to invest in IPOs is essential for any investor looking to get in early on promising companies. An Initial Public Offering (IPO) is one of the most exciting events in the stock market. It’s when a private company offers its shares to the public for the first time. For investors, IPOs can be a chance to get in early on a promising company before its stock begins regular trading. But before you jump in, it’s essential to understand how IPOs work, what risks they carry, and how to invest wisely. In this guide, we’ll cover everything you need to know to confidently invest in IPOs.
This guide focuses specifically on how everyday investors can take part in a company’s public listing — from opening a brokerage account through monitoring your position after the stock starts trading. If you’re instead interested in acquiring shares before a company lists, that’s a related but different process covered in our guide to buying pre-IPO stock. For a broader look at how the IPO process works end-to-end, see our IPO ecosystem overview.
An IPO is when a company lists its shares on a stock exchange for public trading. The main reasons companies go public are:
- To raise capital for expansion
- To allow early investors to cash out
- To increase the company’s market visibility
Example: Facebook’s 2012 IPO raised $16 billion, making it one of the largest tech IPOs in history.
Why Invest in IPOs?
Benefits include:
- Early entry before stock prices potentially rise — investors who receive an allocation at the offer price get in before the stock begins trading freely on the open market.
- Opportunity to invest in high-growth companies — many companies choose to go public during a period of rapid expansion, which can appeal to growth-focused investors.
- Diversification of your investment portfolio — adding newly public companies can broaden your exposure beyond a portfolio made up mostly of established, already-listed stocks.
These potential benefits do not guarantee investment success — see the Risks section below before deciding whether IPO investing fits your strategy.
How to Invest in IPOs – Step-by-Step
- Open a Brokerage Account
- Not every brokerage offers IPO access, and the brokers that do typically require you to meet account-size or activity thresholds before you can request shares. Brokers known for offering retail IPO participation include Charles Schwab, Fidelity, and E*TRADE from Morgan Stanley — see the comparison below for what each currently requires.
- Check IPO Eligibility
- Some IPOs require a minimum account balance or trading activity, and eligibility is typically confirmed through your broker’s own qualification questionnaire. You can track which companies are expected to list soon using our IPO calendar.
| Broker | IPO Participation Offered | Notable Eligibility Requirement |
|---|---|---|
| Charles Schwab | Yes — via a Conditional Offer to Purchase submitted during the open IPO window | Roughly $100,000 in account assets plus a completed eligibility questionnaire |
| Fidelity | Yes — through Fidelity’s new-issues program | Typically $500,000 in qualifying assets for most offerings (as low as $100,000 for select offerings); waived for Private Client Group, Premium Services, and Active Trader Services members |
| E*TRADE from Morgan Stanley | Yes — through the IPO Center | A completed investor profile and sufficient account funding; allocation is never guaranteed |
- Research the Company
- Read the prospectus filed with the Securities and Exchange Commission (SEC).
- Apply for Shares
- Submit an IPO application through your broker.
- Wait for Allotment
- IPO shares are allocated based on demand and broker policies.
- Monitor After Listing
- IPO prices can be volatile in the days and weeks after listing; decide if you want to hold long-term or sell for quick gains, and keep an eye on ongoing IPO news for developments that could affect your position.
Risks of Investing in IPOs
- Price volatility in early trading — newly listed stocks often swing sharply in their first days as the market works out a fair price with limited trading history to anchor expectations.
- Limited historical performance data — unlike established public companies, a newly listed company has little or no public trading record, earnings history, or price behavior to evaluate.
- Overvaluation due to market hype — strong investor demand ahead of a listing can push the offer price, or the opening trade price, above what the underlying business may support over time.
Pro Tips for Successful IPO Investing
- Only invest in industries you understand
- Avoid investing your entire portfolio in IPOs
- Consider waiting until after the IPO lock-up period ends to buy shares, since insider selling once the lock-up expires can add downward pressure on the stock price
Frequently Asked Questions
Can beginners really invest in an IPO, or is it mostly for institutional investors?
Retail investors are not shut out of IPOs the way they once were — brokers such as Charles Schwab, Fidelity, and E*TRADE from Morgan Stanley now offer some form of retail IPO access. That said, share allocations are typically limited, and demand from institutional investors is usually much larger, so requesting shares does not guarantee you’ll receive any.
How much money do I need to start investing in an IPO?
There’s no single dollar figure that applies everywhere — it depends on your broker’s eligibility rules and the price of the shares you’re requesting. As the comparison above shows, some brokers set account-asset thresholds in the hundreds of thousands of dollars for general IPO access, so check your specific broker’s requirements before assuming you qualify.
What is an IPO lock-up period, and why does it matter to me as an investor?
A lock-up period is a set window after a company goes public — commonly around 90 to 180 days — during which company insiders and early investors are typically restricted from selling their shares. When the lock-up expires, increased selling from insiders can add downward pressure on the stock price, which is one reason some investors wait until after this window closes before buying in (see the Pro Tips section above).
Is it possible to lose money immediately after an IPO?
Yes. First-day and first-week trading can be volatile in both directions, and there’s no guarantee a stock will trade above its offer price once public trading begins. This is one of the reasons the Risks section above is worth reading carefully before you request shares in any offering.
Conclusion
Investing in an IPO can put you into a newly public company from its earliest days as a publicly traded stock, but it comes with a process to navigate and real risks to weigh. Before requesting shares in any offering, make sure you’ve opened an account with a broker that offers IPO access, confirmed you meet that broker’s eligibility requirements, read the company’s prospectus, and considered how the risks described above fit your own investment approach. IPO investing carries no guarantee of a positive outcome, and share allocations are never assured — treat any IPO as one part of a broader, diversified strategy rather than a shortcut to outsized returns.
