Investing in stocks is child’s play with trading apps – but one thing is much harder: investing directly in the IPOs of tech companies at the issue price before the stocks begin to circulate in the open market. This can pay off with some IPOs – because pretty often the stock’s price goes up in the first few hours.
The popular US-based trading app Robinhood has also recognized the traders’ interest in investing directly in IPOs. It has now been announced that users (the app is currently only available in the US) would be able to invest in IPOs. “Most IPO stocks usually go to institutions or wealthier investors. With IPO Access, normal investors at Robinhood also have the chance to get in at the IPO price, ”says Robinhood.
This callout from the people has been heard by the American based trading platform Robinhood. The company has promised to allow their users to invest in IPOs in the foreseeable future. “We’re starting to roll out IPO Access, a new product that will give you the opportunity to buy shares of companies at their IPO price, before trading on public exchanges. With IPO Access, you can now participate in upcoming IPOs with no account minimums,” Robinhood said in a recent blog post.
Users will be able to pick which IPOs they are interested in in the coming weeks. When the final price is fixed, users will have the opportunity to fix the purchase or refrain from it. “IPO shares can be very limited, but all Robinhood customers get an equal shot at shares regardless of order size or account value,” Robinhood added. One question remains unanswered, if users will be able to invest in Robinhood’s own IPO.
Freedom Finance already allows investing in IPOs
Robinhood is not the first platform to allow amateur investors to invest in IPOs. Freedom Finance, a trading platform based in Cyprus, has already enabled the feature on their site. The platform’s users have already been able invest in IPOs of the following companies: SimilarWeb, UiPath, Deliveroo, Coursera, Bumble, Qualtrics, Affirm, and Wish.
However, there are several conditions that need to be mentioned. First, an individual must invest at least USD 2,000 in order to participate in an IPO. Second, at the moment, Freedom Finance provides a limited amount of shares. Just as Robinhood is available to Americans only, Freedom Finance is only functional in Europe.
Freedom Finance cannot guarantee that the prospect will actually receive shares, as the company has no control over the overriding underwriter’s allocation process. Of course, customers only pay for the securities they buy. The rest of the money will be returned to the account. “The number of shares purchased during an IPO depends on supply and demand. Due to the number of IPO investors, the underwriters can only satisfy a part of the broker’s order, as the amount of shares coming from our clients’ orders alone may even exceed the share number for the entire IPO. This means you can receive shares worth a smaller amount than you specified in your order,” Freedom Finance said in a blog post. “Allocation is the amount of IPO shares purchased divided by the order amount. Many IPO’s have such small allocation as 1% to 5%, while some others may range from 10% to even 70%,” the company added.