How to buy IPO stock?

With an IPO, a private company "goes public" by offering its stock for the first time on a stock exchange, like the NASDAQ or NYSE. If you want to purchase shares of a stock in an IPO, you'll most commonly have to go through a broker. Those with a brokerage account at one of the big banks have a better chance. Outside of the big banks, full-service brokers with larger amounts of assets under management offer better chances of getting in on an IPO than the bare-bones, do-it-yourself-oriented online brokerages. However, many online brokerages now offer zero commission trading.

Should you buy IPO stock or wait?

Remember, it’s the job of the underwriters to get people excited for the company’s debut. You may be tempted to jump in and buy shares immediately, but there are some things to consider.

IPOs tend to be by new companies that haven’t been around for a while. That increases the likelihood that they’re not yet profitable yet, and consequently, the valuation set by the IPO share price may be too high.

During the dot-com bubble, many investors were burned by young, unprofitable Internet companies that went public and then crashed in the stock market. More recently, data from Dealogic showed that since 2010, around a quarter of U.S. IPOs have seen losses after their first day.

If you have your heart set on investing in IPOs, you can find out about upcoming listings by taking a look at stock exchange websites. The Nasdaq has a list of upcoming IPOs on its IPO activity page, and the New York Stock Exchange maintains a list of expected deals on its IPO center.