The FIGS Inc. (FIGS) IPO and How Initial Public Offerings Will Work on Robinhood
Traditionally, participating in an IPO – that is, buying shares at the initial offering price – has been difficult and typically requires large buy orders with share grants to preferred clients of the big houses of brokerage. However, as technology continues to make trading stocks more accessible to individuals, investment in IPOs has slowly followed.
The final step in giving Main Street investors an equal footing with wealthy and institutional investors is Robinhood’s new IPO Access, which gives Robinhood users the ability to buy shares of one share at the IPO price in stock exchange, alongside the hedgies and other elites.
This is a big deal, because even with the steps that were taken by other online brokers to open up access to stocks during the initial public offering, there were still some hurdles that kept many people from opting out. to qualify.
Each broker has their own rules about who can and cannot qualify for IPO purchases, but among brokers, investors typically need $ 100,000 in household assets (or more). This tends not to include 401 (k) s.
In addition, investors need a few thousand dollars in their account, which is already disqualifying many retail investors. the average wallet size on a Robinhood account is between $ 1,000 and $ 5,000, which is probably pretty representative of retail investors considering the company has 13 million accounts. And, when you consider that there are million dollar accounts that inflate that average, it’s safe to say that most Robinhood and retail investors don’t have a few big ones lying around.
Also, if you are able to qualify and be selected for an IPO on non-Robinhood, you will likely need to buy the shares in blocks of 100 shares. So, if the stock’s IPO is between $ 10 and $ 50, the average Robinhood account would have to liquidate and invest their entire portfolio in the volatile IPO. Basically, this means that retail investors who want to have a diversified portfolio are also excluded.
How to participate in an IPO at Robinhood
Getting into an IPO on Robinhood is easy. First, you’ll want to follow the IPO Access page, which gives you a list of upcoming IPOs you can choose from. For now, FIGS, Inc., which will have the ticker symbol FIGS when it goes public on May 27, is the only IPO available to Robinhood users.
On the IPO shares page, investors can and Should read the prospectus. The prospectus provides potential investors with important information about the investment offering and provides details on investment objectives, strategies and performance, among others.
From there, you just need to click on ‘accept’ to confirm your eligibility, which just means that you are not a restricted person, like the spouse of the CEO of the company or other members of the company. family. It also confirms that you are aware of the risk associated with investing in an IPO, which is a very real issue that investors should take seriously.
Among the eligibility criteria, Robinhood wants its investors to recognize and understand its so-called “turnaround” policy. Under the turnaround Policy, investors cannot receive an additional investment for 60 days if they sell shares on an IPO within the first 30 days. It’s basically Robinhood putting investors in a half-hearted blocking period to ensure its investors aren’t blamed for a stock tanking when it goes public. It also means that Robinhood investors will have to be selective about which IPOs they want to participate in if they are to sell in a “pop IPO” when a stock soars on day one of trading.
It’s a half-hearted move, and rightly so, as Robinhood doesn’t stop you from selling your shares for the first 30 days, or buying more (probably a lesson from the trading stops on GameStop). Robinhood will penalize you, however, if you sell your IPO shares before the end of the 30 days. The sanction is a 60-day IPO ban, which, depending on how lucky you must be to get stock on the stock exchange, might not be a real punishment at all.
After confirming the eligibility criteria, investors are chosen at random, which means that the more people who want to participate, the lower your chances of getting shares. Robinhood says that the size of the order, the age or value of the account, and whether or not you are a Gold member will not affect your chances of getting stock on the stock market. Once the final price is announced, you confirm that you still want to buy the stock at that price, then wait and see if you are lucky enough to be selected for stocks.