How to Buy an IPO

There are two ways to own shares in a company going public, at two different prices.

At the offer price, through an allocation from the underwriters. This is the number quoted in "the company priced at $29." Access is restricted, and most individual investors do not get it.

In the open market, once trading begins. Anyone with a brokerage account can do this, at whatever the market is paying — which on a strong debut is substantially higher.

Knowing which one you are doing is the whole thing. This page explains the mechanics of each. It is not investment advice and recommends no security.

How do you get an allocation at the offer price?

Shares at the offer price are allocated by the underwriters, not sold on an open market. They decide who receives shares and how many, and the decision favours institutional investors expected to hold rather than sell immediately.

For an individual, two routes exist.

A brokerage access programme. Some brokerages receive allocations from the syndicate and distribute them to eligible clients. Eligibility varies considerably between firms and typically involves minimum balances, trading activity, or account type. You submit a conditional offer to buy against the indicative range before the deal prices; you generally must reconfirm after pricing, and missing that window lets your indication lapse. Allocations are usually scaled back heavily and are frequently zero. Terms differ by firm and change, so read your broker's current programme documentation rather than any general description.

A directed share programme. Many companies set aside shares at the offer price for people connected to the business — employees, customers, suppliers, or others the company names. If you are a customer of a company going public, this is the likeliest route open to you. Companies notify eligible participants directly and run the programme through a designated broker, usually within a short window.

The prospectus discloses whether a directed share programme exists and roughly how many shares it covers.

See IPO allocation · What happens to employees in an IPO?.

Who is barred from an allocation outright?

Under FINRA Rule 5130, restricted persons may not buy new issues at all — broadly, broker-dealer personnel, certain portfolio managers, and their immediate family members. The rule exists to stop the securities industry allocating profitable deals to itself.

If it applies to you, your broker screens for it during the application process.

What does buying in the open market actually get you?

The same shares, at an auctioned price rather than a negotiated one.

The first trade is produced by an opening auction that matches all the accumulated demand — from everyone who was not allocated — against a deliberately limited supply. The result is frequently well above the offer price.

Figma priced at $33 in July 2025, opened at $85, and closed its first day at $115.50. An allocated investor bought at $33. A buyer at the open paid $85. The headline "up 250% on its debut" describes the first investor's day, not the second's.

See Offer price vs. opening price · IPO opening auction.

Why do order types matter more than usual on day one?

Because the price can move enormously in the first minutes, in a security with no trading history.

A market order agrees to transact at whatever price prevails. One entered while indications were $60 can execute at $85.

A limit order caps what you will pay. It may not fill if the stock opens above your limit, which is the point of using one.

Indications are estimates. The exchange publishes likely opening ranges as orders accumulate, they move, and a stock can open outside the last one published.

Volatility halts are common on a debut and interrupt trading unpredictably.

Is there a rule against selling immediately?

Not a law, but there are consequences that depend on how you bought.

If you received a retail allocation, most brokerage programmes restrict selling within a short window — commonly around 30 days — with exclusion from future allocations as the penalty. The terms are in the programme agreement. The reason is that the allocation system depends on shares going to holders; selling immediately, known as flipping, works against the aftermarket the underwriters are building.

If you bought in the open market, no such restriction applies. You own ordinary shares.

What about pre-IPO shares?

Platforms offering access to private company shares before listing are a materially different activity, with limited disclosure compared with a registered offering, uncertain liquidity, transfer restrictions the company may enforce, valuation opacity, and fee structures that can be substantial.

A company going public discloses extensively because securities law requires it. A private company generally does not. That asymmetry is the central difference.

What can you find out before deciding?

Everything the company is required to disclose, free, on EDGAR.

The prospectus — business, risk factors, financial statements, ownership, use of proceeds. See How to read an IPO prospectus.
The primary and secondary split, on the cover page: whether the company is raising capital or existing holders are selling. See Primary vs. secondary shares.
The price range and any revisions, filed as amendments. A revised range is the clearest public signal of how the deal is being received. See How is an IPO priced?.
The lock-up terms, in the underwriting section, which tell you when insider supply arrives. See IPO lock-up period.
The float, which determines how much stock is actually tradeable. See Public float.

What do the first-day averages not tell you?

On Jay Ritter's long-run US series, first-day returns since 1980 have averaged roughly 19%, with a median nearer 7%.

That statistic describes the return to investors who received allocations at the offer price. It is not a return available to someone buying at the open, and it says nothing about the following weeks and months. A large first-day gain reflects demand for a scarce slice on one morning.

See Why do IPOs pop? · Are IPOs good investments?.

Quick answers

Can anyone buy an IPO? Anyone can buy in the open market once trading begins. Buying at the offer price requires an allocation.

Why did I get fewer shares than I asked for? Scaling back is standard on oversubscribed deals, and zero allocations are common.

Do I pay a commission on an allocation? Typically not a separate commission — the underwriting discount is built into the offer price and borne by the company and any selling shareholders.

Can I buy before the stock opens? You can submit an order into the opening auction, subject to your broker's rules. That is not buying at the offer price.

Is buying at the open the same as buying an IPO? In common usage yes; mechanically no. You are buying in the secondary market at an auctioned price.

Should I buy IPOs? Not a question this page answers. We are not investment advisers, and the answer depends on circumstances no general page can know.

IPO allocation · What happens on IPO day? · Offer price vs. opening price · IPO opening auction · How to read an IPO prospectus · IPO risks

Sources

FINRA Rule 5130 — restrictions on the purchase and sale of initial equity public offerings
FINRA Rule 5131 — new issue allocations and distributions
SEC investor education materials on initial public offerings
NYSE and Nasdaq opening auction documentation
Directed share programme disclosure in issuer prospectuses on EDGAR
Jay R. Ritter, University of Florida — US first-day return series