How to trade IPO stocks

How to trade IPOs on the first day

You can trade an IPO on its first trading day by using CFDs. These derivative products mean you can speculate on the price of the IPO stocks without needing to take ownership of the shares. You go long if you think that the IPO price is low – and therefore that the shares will rise in value – or short if you think they are overpriced and will fall.

Learn more about CFDs 

A lot will depend on whether your broker has liquidity on the stock. On the first day of a listing, there often isn’t enough liquidity to provide a short market, so you may only be able to go long. The levels of liquidity will depend on how popular the IPO is, and can change quickly throughout the day so it’s important to keep an eye on the market.

Start trading IPO stocks

When an IPO has taken place, you can trade CFDs on the shares with City Index in these easy steps:

1. Research the company and read the prospectus or analysis on the shares
2. Open a City Index account, or log in if you’re already a customer
3. Search for the company you want to trade in our award-winning platform
4. Choose your position and size, and your stop and limit levels
5. Place the trade

Alternatively, if you’re not ready to start trading live markets, you can practise first in a risk-free demo account.

What happens on the day of the IPO?

On the day of the IPO, anyone who has subscribed to the offering (the term for pre-registering interest in the shares) will receive their share allotment before the market opens. This is what is known as the primary market because the transaction takes place between the company and investors – via an underwriter, usually a bank. Traditionally, the process is only open to institutional investors, but it’s starting to be opened up to retail investors too.

After the share allotment happens, the investors officially become shareholders. But, once the stock market opens, they are free to sell their holding to other market participants at a higher (or lower) price. This is called the secondary market.

From the first day of an IPO, the shares enter what is known as ‘conditional trading’. During this time, all purchases have deferred settlement and you won’t necessarily be guaranteed that the trade goes ahead. Conditional trading periods can last from a few days to a week. Once unconditional trading starts, the shares are said to be freely traded on the open market.

Find out more about what an IPO is and how it works

How to know when an IPO starts trading

The time IPOs start trading will vary depending on the stock exchange the listing is taking place on. In general, for the US and UK, a stock that has IPO’d will be available to retail traders and investors when the market opens – at 2:30pm and 8am (UTC) respectively. But due to a lot of administrative red tape, they can be delayed by a few hours.

For stocks listing on the London Stock Exchange, once an IPO price is set, it is usually revealed at 7am. Conditional trading will then begin at 8am (UTC) and will last for a few days. In some other countries, newly-listed shares will start trading at specific times. For example, in India, IPO securities will start trading at 10am. In Australia, trading starts at different times depending on the IPO.

FAQs

Can you day trade IPOs?

Yes, you can day trade IPOs. As soon as the stock lists you’ll be able to open and close positions as you normally would, this would include a regular day trading strategy. The only thing to bear in mind is that there will be limited price data available with which to build your strategy so it’s important to be cautious.

Get started with a City Index account.

Do IPOs trade at the market open?

IPO stocks in theory will be ready to trade at market open – so 2:30pm (UCT) for US stocks and 8am (UCT) for UK stocks. But a lot of the time they aren’t ready because they have to go through a process of approval that can take a few hours.

See upcoming IPOs you can trade with City Index.

Can I sell IPOs on listing day?

In general, no you can’t sell IPOs on listing day. There usually isn’t enough immediate liquidity to create a short market, so you may only be able to go long. The levels of liquidity will depend on how popular the IPO is, and can change throughout the day.