How to take a position before, during and after an IPO

How can you get exposure to an IPO?

We’re the only UK provider that lets you take a position pre-IPO, participate in the IPO and trade the stock once it’s fully listed.¹

1. Grey market
2. Primary market
3. Secondary market

Grey market

If a company’s IPO has a lot of public interest, we may offer a ‘grey market’ before the IPO takes place. This’ll let you speculate on the company’s estimated market cap at the end of its first day of trading.
The price that we quote for a grey market offering will be based on our prediction of the company’s market cap at the end of its first trading day.

• You’ll ‘buy’ (go long) if you think the company’s market cap will be higher than the price we quote
• You’ll ‘sell’ (go short) if you think the company’s market cap will be lower than the price we quote

Primary market: buying at the IPO price

If a company has filed for an IPO and you want to invest in the stock, you can subscribe to the IPO ahead of the offering. By doing this, you’ll receive a stock allocation at the same time and for the same price as institutional investors, without needing to wait for the secondary market to open to take your position.

You can access the primary market by creating a share dealing account with us.

Secondary market: buying the stock after the IPO – investing or trading

Once the company has listed, the secondary market will open. This is where retail investors can buy and sell the stock between themselves, or where you can trade on a share’s price movements with derivatives.

To invest on the secondary market, you’ll need a share dealing account. Investing gives you direct ownership of the stock – making you a company shareholder. To trade on the secondary market, you’ll use either spread bets or CFDs. With these leveraged products, you won’t own the shares when you trade, but you’ll be able to speculate on the share price whether it goes up or down. Note that trading on leverage increases your risk of losing more than your deposit.

With us, you can take a position on the secondary market for UK IPOs as soon as it opens – which is usually at 8am (UK time) on the day of the IPO. US IPOs might take a few hours to be available to traders, which is the case for all brokers.

Make sure you always have an effective risk management strategy in place when trading an IPO, as the share price could experience increased volatility right after the listing.

IPO trading steps

1. Learn how IPOs work
2. Choose an IPO to trade
3. Decide how to take a position on an IPO
4. Build your IPO trading plan and strategy
5. Open your first IPO position

Learn how IPOs work

The IPO process starts long before the shares list on an exchange. First, a company has to make the decision to go public. This is followed by a financial audit of the business and a registration process. The news of an upcoming IPO will usually be released a few months before the planned listing – which gives you time to study a company’s fundamentals and decide whether you want to take a position on its shares.

Choose an IPO to take a position on

There are hundreds of UK, US and international IPOs every year. Find out more about upcoming IPOs or sign up to our exclusive mailing list to find new IPO stocks. By subscribing, you'll receive updates on any changes to expected IPOs, as well as the latest news on upcoming listings.

Decide how to take a position on an IPO

With us, you can invest in the company’s shares with a share dealing account on the primary or secondary market. Investing in the primary market lets you take a position on the company’s stock pre-IPO; investing in the secondary market will give you ownership of the shares once the company has completed its IPO.

You can also trade on a company’s market cap pre-IPO with our exclusive grey markets, or speculate on the company’s share price on the secondary market with derivatives like spread bets and CFDs.

Investing in shares

You can create a share dealing account to invest in upcoming IPOs on the primary market or to invest in shares once they’re available on the secondary market.

When you’re investing, you’ll pay the full value of the position up front which will give you direct ownership of the company’s stock. This’ll make you a shareholder, and you’ll be eligible to receive any dividends that the company pays, and get shareholder voting rights if the company grants them.

With us, you can invest in US shares for zero commission and UK shares from as little as £3.²

Trading derivatives

You can create a leveraged trading account to speculate on a share’s price movements with derivatives like spread bets and CFDs. Before the IPO, you can use these derivatives to trade our grey market, and after the IPO you can use them to speculate on a stock’s price rising (by going long) and falling (by going short).

You might choose derivatives because they enable you to open a position with leverage, which requires a small deposit (margin) rather than committing the full value of the shares upfront. This can magnify profits and losses, as both will be calculated from the full exposure of the trade, not just the margin you put up a deposit. Derivatives also offer various tax benefits.³

Build your IPO trading plan and strategy

A good trading plan and risk management strategy will provide guidance on how to find opportunities, and when to take profits and cut losses. There are several ways you can minimise your risk, which include attaching stops to your positions. Stops will close your trade at a certain level if the market moves against you, minimising your losses.

To learn more about trade planning and risk management, join IG Academy. It’s a great tool for developing your knowledge on all things trading, with free online courses, webinars and seminars.

IPO trading and investing strategies

We’ve highlighted some IPO trading or investing strategies below. Remember that before using any of these strategies, you should take steps to manage your risk.

1. Invest in an IPO primary market
2. Check the price discovery on day one
3. Wait for the lock-up period to end
4. ‘Buy’ or ‘sell’ the IPO stock with derivatives

1. Invest in an IPO primary market

If you subscribe to the IPO ahead of the offering, you’ll get a stock allocation at the same time and for the same price as institutional investors, without needing to wait to trade the shares on the secondary market. This means that you can capitalise on the initial excitement surrounding an IPO – particularly if the outlook for the company is strong and a share price increase is expected.

The tables below show the data for how companies’ share prices performed after the first day, first week, and first month of their IPOs.

But, remember to take steps to manage your risk if you’re going to use this strategy. Excitement often leads to increased volatility, which could mean that your positions experience sudden shifts in price – which might lead to heavy losses without a risk management strategy in place.

2. Let the stock establish some price discovery

Taking a position on an IPO on its opening day can be very different compared to other market opportunities. Support and resistance levels haven’t been established yet and people are often excited with certain expectations. One of the best ways to handle hot IPOs is to wait for the morning volatility to cool off and allow the stock to establish some ‘price discovery‘.

This will give you levels to trade off and price action will likely be less erratic and volatile. Having levels to trade off helps you manage risk, which is your number one goal when trading an IPO. Placing hard stops and managing trade size is a must.

3. Wait for the lock-up period to end

IPO shares are often subject to a ‘lock-up’ period. These can last up to six months and mean that existing shareholders cannot sell their shares immediately after a listing. If you notice that they are holding on to shares after this period, it could mean that shareholders think there is potential for growth and it’s time to buy because the share price could remain stable or increase.

But, if the share price falls after the lock-up period, it could indicate that confidence in the company is low. This could be an opportunity to go short with derivatives like spread bets and CFDs.

Following this strategy means that you’ll miss out on the initial market volatility that IPOs often cause – which could be a good or a bad thing, depending on your individual appetite for risk. There’s no saying that you can’t combine these strategies. For example, you might choose to buy and hold some shares from the primary market and wait for the lock-up period to end, but you could also trade the secondary market volatility with derivatives like spread bets and CFDs on the day of the IPO.

4. ‘Buy’ or ‘sell’ the IPO stock with derivatives

If you want to capitalise on upward and downward movements in a company’s share price on the day of its IPO, you could take a position with derivatives like spread bets and CFDs. You can use these products to ‘buy’ (go long) if you think the company’s share price will rise, or ‘sell’ (go short) if you think it’ll fall.

But, bear in mind that spread bets and CFDs are leveraged products, and leverage can increase both your profits and your losses.

Open your first IPO position

Once you’re ready to start trading or buying shares, you can open your first IPO position. Remember that there are a variety of ways to take a position with us – including trading before, during or after the IPO with our range of accounts and offerings.

Before you open your IPO position, make sure you take steps to manage your risk like adding stops and limits to your open positions, and by monitoring your positions closely.

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