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Do you know how to buy shares at the IPO price in Germany? And why it can be an interesting investment? In this article, we will explain what is IPO, as well as the advantages and risks of buying shares at the IPO price. You will also find in this article the biggest IPOs expected in 2022-2023. And of course, I include a step-by-step guide on buying shares at the IPO price in Germany.
A summary for the busy people
Even though buying shares at the IPO price is a risky investment, the reward can also be very high if you do it right.
Freedom Finance – The only EU broker that allows customers to buy new stocks at the IPO price. 53% average price growth of the new stocks bought by investors at the IPO price. USD savings account with 3% annual income. 100% commission-free trading in the first month.
Keep on reading for more details about buying shares at the IPO price in Germany. Scroll down for the detailed features of Freedom Finance.
Disclaimer: The statements, comments, and other content contained in this article, even if individual issuers or financial instruments are mentioned, are not to be construed as investment advice and do not constitute, directly or indirectly, a recommendation or solicitation to buy, hold or sell any financial instrument or any advice relating thereto. You are responsible for your own risk if you decide to participate in any form of investment.
When I still lived and worked in Hong Kong back then, my colleagues were always talking about stock investment. They talked about buying shares at the IPO price. There were a lot of IPOs in China. Getting to buy those shares seemed to be very difficult.
From time to time, some colleagues got allocated shares at the IPO price successfully. They would react like they had won a lottery. Then, they would post about this on Facebook to share the excitement.
To be honest, I didn’t understand what all these were about. I was not into stock investment back then. So, I didn’t know so much. What I heard was that it was extremely difficult to get the shares at the IPO price. But if one got some shares, he would likely make money from them.
The mystery was that the price of those shares most likely shot up once the IPO happened. It means that my colleagues could sell the shares later on and make a handsome gain.
Now, I live in Germany and have been trading for a while. I was wondering how it worked here if I wanted to buy shares at the IPO price. Surely, there is also a way to do it here. Let’s talk about it.
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What is IPO?
IPO stands for initial public offering. When a company first starts, it usually relies on private funding to run its operation. As the company grows, it will need more capital. One way to raise more capital is IPO.
IPO is a process by which the shares of a private company are offered to the public for the first time at a new share issue. For the company, IPO can be a good way to raise a large sum of money from a wide range of investors.
The advantages of buying shares at the IPO price
When a company is small, it usually finances its operation with private funding. But when it grows bigger, private funding may not be enough anymore. So, it may decide to go public.
With that said, companies going public are usually growing. If you believe that a company has the potential to grow, you may consider buying its share at the IPO price. In case the company is really successful in the future, you will also get a very good return on investment. It is because you invest early enough before the company grows very big.
To give you an example, Tesla had its first IPO on NASDAQ on 29 June 2010. At that time, the price was 17 USD per share. In November 2021, the peak price was 1,222.09 USD.
Below are examples of some other companies. Their shares have a good price growth comparing their IPO price and the price after a 93-days lock-up period.
Date when the lock-up period ended
18 March 2021
18 March 2021
27 Sept 2021
9 Sept 2021
20 Sept 2021
Note: Past performance, simulations or forecasts are not reliable indicators of future performance.
Who can buy shares at the IPO price?
As a retail investor like you and me, it may not be easy to get a chance to buy shares at the IPO price. Why? It is because these shares are usually reserved for big institutional investors, or the families, friends, and employees of the company that is going public.
Especially if the company going public is very popular and people have high expectations of its growth, there will be even more competition from the institutional investors to get more shares. This further reduces the number of shares that can be allocated to retail investors.
But don’t be disappointed. There is a way also for you and me to buy shares at the IPO price. And I am going to show you.
How to buy shares at the IPO price?
Even though the option to buy stocks at IPO price is usually reserved for institutional investors, there is a way for retail investors like you and me to buy these stocks as well. The solution is to find the correct broker.
At the moment, Freedom Finance Europe is the only EU broker which allows you to get new stocks at the IPO prices. How does that work? Freedom Finance historically gets an allocation for IPO-priced stocks because of its partnerships with leading banks and underwriters. That is the reason why retail investors can also buy shares at the IPO price via Freedom Finance.
Some highlights of Freedom Finance:
- A publicly traded company itself (NASDAQ: FRHC)
- Reports to BaFin in Germany and SEC in the USA
- Full compliance with MiFID II
- More than 450,000 customers
- Also offers a wide range of classic investment instruments, e.g. stocks, ETF, US options, etc.
- The lowest price in Europe on US stock options (just $0.65 per contract)
- USD savings account with 3% annual income and daily interest accrual
- Personal support manager for each German client
- As of 22 Sept 2022, there is a 53% average price growth of the new stocks bought by investors at the IPO price
- 100% commission-free trading in the first month after the registration
- No minimum deposit or inactivity fees
How good is your chance to buy shares at the IPO price?
IPO for a popular company is a highly anticipated event. There is great demand for the stocks not only from retail investors but also from large players and corporations. So, the total number of applications for the IPO-priced stocks always greatly exceeds the available stock amount. It means that the number of shares distributed at the IPO price is always limited.
You can buy shares at the IPO price via Freedom Finance. But in most cases, you can only get a percentage of your applied number of stocks.
How to improve your chance to buy more shares at the IPO price?
Luckily, there is a way for you to improve your chance to buy more shares at the IPO price. To do so, you will need to work on your client rating at Freedom Finance. This rating is based on your regularity of trading, portfolio liquidity, and persistence to keep purchasing new stocks at the IPO price.
You can improve your client rating pretty fast (in a few weeks) if you build a strong investment portfolio with Freedom Finance. Make use of the first month after registration. During this month, there are no trading fees and no fees for all top-up methods. Even premium services such as SMS alerts are free.
You can either build your portfolio by funding your account. Or you can transfer your portfolio from another broker to Freedom finance. If you do so, you can receive 1000 points at Freedom finance and you can use these points to cover fees in the future (1 point = 0.02 EUR).
Besides, try to apply for a higher number of stocks at the IPO price. The higher the initial application amount is, the more stocks at the IPO price you can get.
A step-by-step guide to buying shares at the IPO price
1. Open an account at Freedom Finance
Go to Freedom Finance’s website. You need to fill in your e-mail and phone number in the registration form. Then, you have to provide the required documents such as ID and address proof. This should take around 10 minutes.
2. Top up your account
You can do so by bank card or wire transfer. Try to create an investment portfolio of highly liquid stocks so that you can grow your client rating.
3. Check the companies
On the IPO page from Freedom Finance, you can see the names of different companies that may go IPO soon. For example, TikTok, Reddit, Instacart, etc. You can check the page to get familiar with the different companies.
4. Apply to the offers
You can only apply to a company when the IPO date is confirmed. You will get a notification from Freedom Finance 5-12 days before the IPO date. Then, you can apply and specify the amount you want to invest.
The minimum application amount for IPO is 2,000 USD. The higher the application amount, the more stocks at the IPO price you can get. Applying to more companies can also positively affect your client rating.
5. When the IPO happens
One day before the company’s IPO date comes, your application amount will be blocked in your account. Let’s say you apply for 2,000 USD and you get one stock (150 USD) in the end. The unused amount of 1850 USD will be returned to your account on the following day.
6. Receive your stock
On the first trading day, you will receive the new stocks at the IPO price.
7. The lock-up period
After the IPO date, there is a 93-day lock-up period. During this time, the IPO-priced stocks cannot be sold. This is to avoid market fluctuation. After the lock-up period, you can choose to sell your stocks or keep them as a long-term investment.
That’s it! Now you know how to buy shares at the IPO price!
What are the biggest IPOs expected in 2022-2023?
Not many companies have officially confirmed their IPOs yet. But you can find below 10 of the biggest future IPOs which are expected in 2022-2023.
Starlink offers high-speed satellite Internet services even for the most remote locations around the globe. The uninterrupted operation will be provided by 4,000 satellites. By November 2021, 1,842 satellites will have been put into orbit.
Elon Musk announced the project in 2015 and already, in 2020, made it clear that an IPO is a must. The amount of investment in Starlink exceeded the figure of $10 billion. Musk is keeping an eye on the financial indicators because the date of the company’s IPO depends on them.
Starlink has a capitalization of $72 billion in 2021 and a total planned investment of $20 billion in the project.
ByteDance, as part of the fight against American sanctions, set up a new venture, TikTok Global. It was given all the rights and the code of the application of the same name to organize work in America.
Already now the American segment of TikTok users amounts to 200 million people. The prospect of attracting well-known organizations to launch marketing campaigns is open.
Oracle and Walmart became the owners of shares in the new company. Management positions were taken by US citizens. The date of the upcoming IPO is still open. The preliminary valuation of TikTok is $50 billion.
Reddit is an online platform that has become popular due to its discussion communities. It is one of the top 20 most visited sites in the world. Here, users can leave anonymous messages, discuss any topic, and vote for their favorite comments.
Reddit is visited by approximately 52 million users daily. The company is valued at $10 billion but plans to reach $15 billion by the launch of its IPO.
Reddit is actively preparing to go public – investment bankers and lawyers are dealing with IPO preparation issues.
Discord Inc. offers users a free messaging service with access to voice and video conferencing. The application was originally developed for gamers, so the emphasis was placed on low resource consumption. Now, Discord works on different platforms – Windows, iOS, Android, and in the browser version. The total audience of the messaging service has exceeded 140 million users.
Discord Inc. is valued at $7 billion, but Microsoft offered $10 billion for the company. The deal did not go through. Since the spring of 2021, active preparation for the upcoming IPO has been underway; the first CFO has been appointed for this purpose. The IPO date is still open.
Instacart is an online grocery delivery service that is ranked third in the US after Walmart and Amazon. The number of customers has increased significantly due to the pandemic. According to forecasts, Instacart’s valuation could reach $30 billion by the start of the IPO.
The placement date has been tentatively moved to 2022-2023. Instacart has decided to focus on increasing market share coverage.
Stripe is an online payment service. The company is justifiably called the most expensive in Silicon Valley, and it is among the top 12 influential startups of the past decade.
The service serves thousands of customers worldwide, including Target and Zoom, which gained popularity during the pandemic.
Stripe is in no hurry to announce an IPO date, but analysts are betting on 2022, based on financial results.
Klarna is one of the world’s largest digital banks and a privately held European fintech company that offers deferred payment arrangements for a range of retail products. This trend is in demand, especially with the onset of the pandemic.
The Swedish company operates in more than 20 countries. Some 90 million people have already become users. The company’s current valuation is $46 billion. To attract investment, Klarna’s management is considering an IPO with a high probability of going public in 2022.
Chime is one of the largest digital banks in the U.S., with a valuation of $14.5 billion. The company began to gain momentum amid the pandemic with customers switching to an online format for dealing with financial institutions. The advantage of Chime is that it’s a user-friendly app, notable for its ease of use.
The company is actively preparing for the launch of IPO, all the preparatory work has already been done. The exact date of the offering is still open.
Databricks, the company that provides the best data storage, offers an open and unified platform for storing information and running artificial intelligence.
Today, more than 5,000 organizations worldwide, including ABN AMRO, Condé Nast, H&M Group, Regeneron, and Shell, entrust their data to Databricks to provide development, lifecycle collaboration, and business intelligence.
The company’s representatives are not yet giving any information about the exact date of IPO, but an active preparation for the start of the offering is underway. The preliminary valuation of Databricks has amounted to $28 billion.
Impossible Foods is a large American company that develops and produces plant-based vegan products. The organization entered the market with a meat substitute and a hamburger, which became popular with customers. Impossible Foods is now working on a line of dairy products.
The demand for healthy food and plant-based foods is growing every year, making the vegan niche a high demand. Impossible Foods is already valued at $8.4 billion but could be worth as much as $10 billion by the time of its IPO. The company’s IPO date is not yet known.
Besides the 10 companies above, there are other anticipated debuts that will shine. These include Mercury Retail Group, Sotheby’s, and others. For more information, you can check out the IPO page from Freedom Finance and see the full list of the upcoming IPOs (along with the past offerings’ performance).
Risks of buying shares at the IPO price
Just like any other investment, buying shares at the IPO price also involves risks. There is no guarantee that the share price must rise after the IPO. So, don’t assume that you will always make a profit when buying shares at the IPO price.
If you plan to hold the shares for longer, there is also no guarantee that the stock price will rise in the future. Even companies that go public may struggle to make a profit.
Therefore, it is important to do your homework before buying shares at the IPO price. Not all the shares are good investments. You will need to spend some time doing research to understand the companies before buying the shares.
Read this before buying shares at the IPO price
Buying shares at the IPO price is not suitable for everyone. It is considered a risky investment. Thus, it is more suitable for experienced investors and those who have a high level of risk tolerance.
If you decide to buy shares at the IPO price, it is very important that you do some research on the companies behind the shares. Unlike public companies, private companies are not subjected to as many regulatory requirements. There may not be much track record for you to study.
However, you can still read about the company, its financial history, its competitor, and the industry to get an idea. You should understand how the company plan to grow its business in the future. Do not buy shares at the IPO price before doing any research.
Another thing to know is that it is not easy to get to buy shares at the IPO price, especially for popular IPOs. In fact, it is very difficult. So, don’t be disappointed if you don’t get what you want.
However, if you follow the tips in this article to improve your client rating at Freedom Finance, you will eventually get to buy more shares at the IPO price.
Buying new stocks at the IPO price can be very risky. But it is also very exciting at the same time. If you do your homework and pick the right stock, you can be rewarded handsomely. Not all companies will be successful after IPO. But every successful company now had once done an IPO. Buying shares at the IPO price can add diversity to your current investment portfolio. Go for it if it is something right for you.
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Please be aware that this article is intended to provide you a brief overview of buying shares at the IPO price in Germany. It does not substitute any professional investment advice. You are responsible for your own risk if you decide to participate in any form of investment.
No investment can guarantee a profit. Every investment is associated with risks and can lead to a complete loss of your invested money. Buying stocks at IPO prices may involve additional restrictions. Past performance, simulations, or forecasts are not reliable indicators of future performance.
We will try to keep the information in this article updated regularly. In case you see any outdated information, please let us know and we will update it accordingly. This blog is not a financial consultant by law and we do not accept any form of liability resulting from reading this article. For the latest information, please refer to Freedom Finance’s website directly.
We cannot give you investment advice or financial services. If you need more details and specific advice on your personal situation, we would highly recommend you to consult a financial adviser and a tax adviser.
Have you ever bought shares at the IPO price? What is your investment strategy? Leave a comment below and share your experience!
Moving to Germany or new in Germany? Check out our Resources Page for all the help you need!