To apply for IPO shares, you place a bid through a brokerage that belongs to the offering’s underwriting syndicate, after confirming you meet the firm’s eligibility rules and reviewing the company’s preliminary prospectus. The bid, called an indication of interest, tells the syndicate how many shares you want and the price you’re willing to pay. Whether you actually receive any shares is a separate question: retail investors compete for roughly 10% of a deal, since institutional buyers like mutual funds and pension funds take about 90% of the allocation.1SEC.gov. Investor Bulletin: Investing in an IPO
Find a Broker in the Syndicate
The lead underwriter distributes IPO shares only to selected syndicate members, so your first step is confirming that your brokerage is actually participating in the specific deal you want. A firm that had access to last month’s high-profile offering may have no shares in the next one. Check well before the expected offering date.
Most brokerages layer their own requirements on top. Common hurdles include a minimum household account balance, an active trading history, or enrollment in a premium service tier.2Investor.gov. Initial Public Offerings: Eligibility to Get Shares at Broker-Dealers Some firms set the floor at $100,000 or more in assets. Thresholds vary by firm, and most publish their IPO rules on their websites.
Even if you clear the numeric bar, your broker still has to decide whether an IPO fits your profile. Under SEC Regulation Best Interest, a broker-dealer recommending an IPO to a retail customer must weigh your financial situation, risk tolerance, investment objectives, and time horizon.3FINRA.org. Regulatory Notice 20-18 New issues are volatile, and a conservative profile with a short horizon can disqualify you regardless of account size.
Check That You’re Not a Restricted Person
FINRA Rule 5130 flatly prohibits certain people from buying shares in any initial equity public offering. The list covers broker-dealer employees, officers, and directors; portfolio managers with authority to trade for a bank, insurance company, or investment company; attorneys, accountants, and consultants acting as fiduciaries to the managing underwriter on that specific deal; and anyone who owns 10% or more of a broker-dealer. The restriction extends to immediate family members when the restricted person supplies more than 25% of their income or shares a household with them.4FINRA.org. FINRA Rule 5130 – Restrictions on the Purchase and Sale of Initial Equity Public Offerings
A separate rule, FINRA 5131, blocks executives and directors of public companies (and certain large private companies) from receiving IPO allocations through any broker-dealer that currently provides, or recently provided, investment banking services to that executive’s company.5FINRA.org. FINRA Rule 5131 – New Issue Allocations and Distributions If any of these categories describe you or someone in your household, ask your broker before doing anything else.
Read the Preliminary Prospectus
A company cannot sell shares to the public without first filing a registration statement with the SEC. For most IPOs that statement is Form S-1, and once filed it’s publicly available through the SEC’s EDGAR database.6U.S. Securities and Exchange Commission. EDGAR Full Text Search Part I of the S-1 is the prospectus. Before pricing, what you’ll see is the preliminary version, often called a “red herring” for the red-ink disclaimer on its cover. It gives an estimated price range but not a final price, and that range anchors your bid.
Two sections deserve real attention. The risk factors disclosure describes the specific things that make the offering speculative, organized under headings that name each risk and explain how it affects this company. Typical entries cover short operating history, recent losses, debt loads, and competitive pressure. The management discussion and analysis section is the company’s own narrative of its financial performance, and pairs with audited financial statements you can trust as accurate.
If you can’t explain, after reading these sections, how the company makes money and what could derail it, you aren’t ready to bid.
Submit an Indication of Interest
Your actual application is called an indication of interest, or IOI. You submit it through your brokerage, usually in an “IPO Center” section of the online portal. Two inputs matter: the number of shares you want, and either the maximum price you’ll pay or a willingness to accept any price within the estimated range.
The IOI is non-binding, but accuracy matters. Your broker aggregates all client IOIs and reports demand back to the lead underwriter. Padding your share request in hopes of a bigger allocation can backfire, because if the deal is undersubscribed you may end up committed to more shares than you meant to buy. Enter what you actually want and can afford.
The submission window is tight. Most brokers close IOIs hours before the registration statement becomes effective, and missing that cutoff means you’re out for that deal. After you submit, log back in and confirm the bid was recorded. The electronic submission also serves as your legal acknowledgment that you’ve reviewed the preliminary prospectus.
Allocation, Re-confirmation, and Settlement
After the underwriters set the final offering price, the syndicate decides how many shares each investor receives. Demand for popular IPOs routinely outruns supply, so allocations come out through some mix of lottery and proportional scaling. Getting fewer shares than you asked for, or none at all, is the normal outcome.
Watch your email in the pricing window. If the final price lands more than 20% above the range in the preliminary prospectus, or below it, SEC guidance calls for the broker to seek re-confirmation from you before completing the purchase.7U.S. Securities and Exchange Commission. Consolidated Compliance and Disclosure Interpretations Miss the re-confirmation deadline and you can lose the allocation you were about to get.
Ownership transfers on the settlement date. Since May 2024, the standard settlement cycle for stock trades, including IPOs, is one business day after the trade date, known as T+1.8FINRA. Understanding Settlement Cycles: What Does T+1 Mean for You Your brokerage withdraws the total cost of the allocated shares from your cash balance, and the shares appear in your portfolio. Have the funds available before trading opens. Your broker is also required to deliver a copy of the final prospectus, which shows the actual offering price and total shares issued.9GovInfo. 17 CFR 240.15c2-8 – Delivery of Prospectus Keep it. You’ll need the offering price to calculate your cost basis at tax time.
What to Know Before You Sell
Once shares are in your account you can sell them whenever you want. Selling quickly, called flipping, isn’t illegal, but underwriters actively discourage it and will refuse to allocate shares to customers who have flipped previous IPO holdings.1SEC.gov. Investor Bulletin: Investing in an IPO Some brokers freeze a client’s IPO eligibility for several months after a flip.2Investor.gov. Initial Public Offerings: Eligibility to Get Shares at Broker-Dealers Each firm sets its own holding period and enforces it at its own discretion. If you want future access, check your firm’s flipping policy before you sell.
Lock-up agreements don’t apply to you as a retail IPO buyer, but they affect the price of what you own. These agreements bar company insiders, employees, and large shareholders from selling for a set period after the offering, most commonly 180 days.10Investor.gov. Initial Public Offerings: Lockup Agreements When the lock-up expires and new supply hits the market, the stock price can drop. Mark the expiration date when you buy.
Taxes tilt the same way. Your cost basis is the offering price you paid plus any transaction fees.11Internal Revenue Service. Publication 551 – Basis of Assets Sell within one year and any profit is a short-term capital gain, taxed at your ordinary income rate, which for 2026 runs from 10% to 37%.12Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Hold longer than a year and the gain qualifies for long-term rates of 0%, 15%, or 20%, depending on your income. Between the tax difference and the flipping penalty, patience usually pays unless you have a real reason to believe the stock is about to fall.