How To Buy IPO Shares In Australia: A Beginner's Guide

People want to know how to buy IPO shares in Australia.


An Initial Public Offering (IPO) is the first opportunity for stock investors and traders to get exposure to a company's shares.


They tend to produce volatile stock price movements on the day of their listing and shortly afterwards, which may result in significant gains and losses.


If you are interested in buying IPO shares in Australia, this blog will help you learn about initial public offerings, their benefits and risks, how to invest in IPO stocks in Australia for beginners, and more.


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1. What Is An IPO?


An IPO is when a private company becomes public by selling its shares to the public through a new stock listing.


It helps companies access investors' capital for working capital, growth, expansion, or debt repayment.


The Australian Stock Exchange regulates the listing of stocks and securities in Australia. So, companies that plan to bring their IPO must conform to the ASX listing rules.



2. Who Sets The Price Of An IPO?


Investment banks fix the price of an IPO.


The company decides the number of shares it wants to sell to the public. Then the appointed investment bank evaluates the business.


Next, the company announces the initial stock price. After it lists on the ASX, the public can trade in that stock.



3. Who Can Invest In IPOs?


Before applying for an IPO, you must check the eligibility criteria. You can invest in an IPO if you meet the following conditions:


  • You must be 18 years or above 

  • You must hold an Australian or New Zealand residency

  • You must fulfil the investment limits of each IPO



4. How Do I Start Investing In An IPO Stock?


Here are the steps to start trading IPOs:



Step 1: Learn How IPOs Work


Before you apply, you must first learn the basic IPO terminologies and how it works.



Step 2: Open An Online Stock Trading Account


You need a live trading account if you wish to trade in IPOs on live markets. Compare online share trading accounts that offer IPOs and choose them based on their fee, convenience, and security.


However, opening a trading account doesn't guarantee you access to all upcoming IPOs.


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Step 3: Explore IPOs And Choose Which One To Trade


You can find the list of upcoming IPOs on the ASX, or you can even find it on your stock broker's website. Many trading platforms, such as eToro, allow you to explore upcoming IPOs along with in-depth expert analysis.


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Step 4: Request The IPO Application Form From Your Broker


Once you have selected the IPO you wish you trade, the next step is to start the application process. You need to get the IPO application form in the prospectus.


You can get the same from your broker. While applying, you must adhere to the minimum and maximum number of shares as defined in the prospectus.



Step 5: Fill Out The Form And Submit It


The last step to applying for an IPO is to complete the form and send a cheque via mail. Alternatively, you can organize a BPay, or directly deposit the investment amount to the IPO provider company in the specified account.


You must complete the necessary documentation and send them within a set duration (usually three weeks) to ensure you take advantage of the opportunity. The float date determines the number of shares you have been allotted.



5. Can Beginners Invest In IPO?


An initial Public Offer is one of the best ways to gain partner ownership in a company quickly. Applying for an IPO involves simple steps that even a newbie can do easily.


Usually, investing in an IPO in the hope that it can earn them a lot of money in a short period tempts most beginners. However, it requires tactful and timely decisions to reap good returns.


As the stock market may be tricky for novices, they should study the market, examine the behaviour of the stocks, and the factors that move the share prices.


Valuable Tips for beginners for a sensible and profitable IPO investment:


  • Determine your investment priorities, risk appetite, and financial goals before you select the appropriate IPO.


  • Do a detailed study of the upcoming IPO and compare their growth and their Price to Earnings (PE) ratio. Ignore the companies with a high PE ratio.


  • There are no guaranteed returns. So, don't borrow money to invest in an IPO. If the stock price falls after listing, you will lose money and have to pay the interest rate on the borrowed money.


  • Getting caught in the excitement of purchasing a new IPO is easy. However, understand the investment risks, the unpredictable nature of markets, and your loss tolerance ability before you decide to buy it.


  • To open an online trading account, compare the fees and features across different stock brokers. Look for a broker that charges you low costs and offers an innovative and convenient platform to place trades online.


  • When choosing an IPO, don't go after the big names creating hype in the market. Instead of relying on stock brokers or investment banks, rely on your research about the company. Understand the company's facts and figures in the IPO prospectus and focus on its growth potential before moving.


  • It is better to wait till the lock-in period to buy IPO stocks ends. This way, you can better evaluate the profitability of the stock and save yourself from early volatility.


  • Make sure you study the market trends, as the IPO performance often follows the trend. A fundamentally strong IPO has a higher chance to perform well in a bullish market and help you earn bucks quickly.


  • Some promoters dump their shares after the lock-in period, which causes the price to fall drastically. Hence a thorough background check on the company's promoters is essential.


  • Avoid getting carried away by the hype surrounding an IPO listing.



6. Can You Get Rich By Investing In IPOs?


Yes. IPOs can make you rich, but if you look at the statistics, only a few IPOs have succeeded in giving manifold returns. First-time retail investors should not get carried away by looking at substantial listing gains or oversubscription figures.


You may make huge gains from an IPO provided that you check the following aspects of the company before investing:


  • Core values, policies, and objectives 

  • Promoters 

  • Past performance and credibility 

  • Market growth opportunity of the segment in which it operates

  • Positioning of the company among its peers

  • Competitive landscape

  • Percentage of market share it holds

  • Future expansion and growth projects

  • Potential to grow into a more prominent company 

  • Current valuation


Thus, you must do extensive research and determine the risk-reward ratio of the investment before you consider one.



7. Can You Sell An IPO Immediately?


You can and cannot sell the IPO immediately. It depends on the type of investor you are.


Retail investors who buy shares of the company right after it gets listed are allowed to sell their shares instantly after buying them. Thus, they can invest in whichever company they like and switch to other companies for a profit when the stock price rises.


However, initial investors such as employees, institutional investors, and other private investors have to hold their stocks till the IPO lockup period after listing before they can sell them on the market. It prevents them from selling the stock immediately.



8. Why Should I Not Invest In An IPO?


If you are thinking about why an IPO is risky and whether it is worth investing in, then here are a few reasons that confirm it:


  • Investment bankers, promoters, and underwriters are the salesmen of IPO. Sometimes they create intended hype and baseless opportunity among investors.


Beware of the terms they use, such as "listing gains," "bright future," "long-term investment," etc., to lure people into buying an IPO. It is one of the ways they trap innocent investors.


  • IPOs are relatively expensive. The company might have launched it at a low price, but it becomes costly when it trades in the market.


  • IPOs are highly volatile, and that's what leads to massive gains or losses. When the IPO launches, it is often a market attraction centre. You can see a lot of trading activity in the stock for a couple of days after it goes public. The supporters and opponents try their best to move the stock price in their favour.


  • Most IPOs tend to underperform and give negative returns. You would understand it if you saw the long-term returns from an IPO.


  • If the IPOs don't have a profitable and maintainable model and the market doesn't find the business worthwhile in the long run, or if the company's ongoing debts exceed its earnings, the IPO will likely fail.


  • IPOs don't have circuit breakers. Circuit breakers are a protection mechanism that defines the limit beyond which the stock price can't fall. Without it, the price of the IPO may drop drastically, resulting in substantial losses.



9. How Do I Find A Good IPO To Invest In?


Several factors determine whether an IPO is worth investing in or not. Your investment strategy, goals, and risk tolerance, to name a few.


To earn profitable new opportunities on your IPO investment, you must read the prospectus thoroughly and evaluate the pros, cons, and inherent risks.


The following factors will help you understand whether a business is reasonably valued and could be a sound investment:


  • The projected strength of the company's balance sheet after the float

  • The long-term growth prospects

  • The expected earnings of the company 

  • The significance and the growth potential of the sector it operates in 


IPO investment may only satisfy you if you focus on tried and tested companies. However, if you prefer stocks with growth potential, IPOs are an option, but still risky.



10. Do Stocks Usually Drop After IPO?


The decline in the stock price after it goes public happens due to the following reasons:


  • When IPO marketers hype the valuation and stock price to a level that the market isn't ready to accept, the stock is overvalued and corrected from that price.

  • If the company can't meet the industry expectations and fails to perform in the financial market based on its quarterly results.

  • If the company fails to meet the industry standards compared to its peers.

  • When the economy is on a downward trend, then also IPOs tend to fall after their listing on the stock market. 

  • If the public's sentiments, including the media, analysts, investors, and the general public, aren't optimistic about the stock, then the stock price may drop after IPO. 

  • The rapid selling from initial investors after the lock-in period could also negatively impact the stock price after IPO.  


In the above situations, you must analyze the situation, understand the actual worth of the stock, and wait for the price to stabilize before investing in it.



11. Are IPOs Better Than Stocks?


IPOs have the upper hand over stocks in terms of better returns.


Still, you should refrain from investing in each IPO, as all businesses might not add value or become successful. If you are confident in the company's feasibility, fundamentals, and valuation, investing in an IPO can be a profitable bet.


What could be better about IPOs is the need for historical data that creates uncertainty about their future performance compared to stocks of well-established companies.


Moreover, the chances of IPO allotment are bleak compared to stocks that don't require any waiting period to own them.


However, both require good study, constant track of developments, and projection of future trends if you consider them for long-term investment.



12. Is Investing In IPO Always Profitable?


There is no way to ensure that an IPO will be profitable in the long run. How it will perform and how much profit you make depends on the company's performance, fundamentals, growth potential, and current and future demand.


The statistics show that out of 10 initial public offerings, only 1 or 2 companies are profitable and make money. You may earn good profits from an IPO if you thoroughly research and invest in the right company.



13. Is It Wise To Invest In An IPO?


Investment in an IPO depends on your financial objectives and risk appetite. Controlling your emotions and not just buying them if it is overhyped is essential to make the right investment decision. 


IPO could be an excellent profit-earning opportunity if a company has healthy financials and attractive future growth prospects.


Once you learn how to differentiate between hype and the company's actual strength, you will have better chances of getting good returns on your investment.


Besides the above, comparing the rewards and risks of IPO investing also helps determine whether it is worth trying.





  • It helps you participate in the initial growth years of a business.

  • It enables you to achieve long-term goals such as a house purchase, retirement, etc.

  • An opportunity to buy a stock at a discounted price that, if missed, won't come again.





  • Lack of information. As private companies introduce IPOs, they don't have stringent disclosure norms. 

  • Investors must refrain from relying on third-party views to learn about its performance. Such beliefs can be manipulated and hide critical information that can negatively affect investors' interests. 

  • After the lock-in period, promoters may sell the fundamentally weak company's shares, book their profits, and exit the stock. That's why investors must do proper research on the company's promoters and its growth prospects. 

  • Some companies use the investor's capital to reduce their debt instead of using it for their research and development. It can pose a considerable risk for investors. 


That's why it is essential for investors to always read the prospectus and find out the real reason for IPO before putting their hard-earned money into it.



14. Conclusion


From a distance, you may find an IPO a perfect money-making tool, but when to go deeper, you may notice hidden flaws.


You can realize gains from IPO investment if you have patience and a strong understanding of the company's fundamentals, valuation, and future growth potential. With the above steps and tips, you can quickly start investing in IPOs.


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