Facebook is going public, with an IPO sometime next week. Since the analysts expect the stock to skyrocket, could you make some fast cash by doing the following?
-Put in a “buy” order for 10,000 shares, at the predicted launch price plus 10%
-Immediately (once your buy order executes), place a sell order for your purchase price plus 20%
-you buy and sell within hours-and clear an immediate profit
Do IPOs work this way?
I don’t think IPOs are initially available to the general public. Broker’s usually reserve them for “special” (institutional and very wealthy) clients. Those clients then do exactly what you’re suggesting.
At least this is what I’ve heard.
Some of the details are laid out in this article: http://finance.yahoo.com/news/facebook-deliver-ipo-surprise-214906015.html
But the gist is that generally the banks reserve a large percentage of the IPO for privileged clients. Some companies, like Google, have tried to buck this trend but some that have tried (Vonage) have failed to raise the capital they wanted. There are some comments in the article about how the US is unique in this “unfair” method, but I don’t know the details of this.
The OP said that he wants to place a bid to purchase at 10% above the projected offer price. This would be a market transaction that took place the day that the stock starts trading. The first two responses are refering to obtaining shares in the initial public offering, while true do not answer the OP’s question.
In my experience your bid would probably not be filled. Especially with an IPO like Facebook’s the first open market transactions are likely to take place well above 10% over the initial price. Trading will be robust and volatile as some are taking profits and some are trying to get in on the action.
Your idea is not without merit, but is also risky. You would also have to have the $ in your brokerage account to cover the purchase plus commission before the trade took place.
Curious Mike is right, and much of the activity on the first day will be people trying to do exactly what the OP suggests. The trading volume of the first day of an IPO often exceeds the number of shares outstanding. Not everyone sells, but many shares changes hands more than once.
As far as i know the Facebook IPO won’t be next week, it will be in a few months yet.
And just how is this reserving access for the wealthy legal. It gives the word “public” a new meaning with regards to public offering.
The wealthy always yap on about how people should take risks and invest like they do in order to reap rewards, but magically, the everyday Joe is locked out of these almost-sure things.
This is the kind of thing OWS should be screaming about.
- Buy Facebook stock.
- ???
- Profit!
It’s offset to some degree by the fact that the privileged clients are often institutional, not individual, and buyers of very large blocks they intend to hold. Particularly if the IPO is expected to do well. Also by the fact that individuals who get in on an IPO from a underwriting broker are strongly encouraged NOT to flip the stock, but to hold it for at least a month or two. It’s not illegal, exactly, and the brokerage can’t stop you, but it will basically get you blacklisted - see if you EVER get in on an IPO again.
The company I work for had a large IPO a few years ago, and certain employees (I think manager level and above) were allowed to buy at the IPO price. Unfortunately I only had the resources to buy about two thousand dollars worth, and instead of selling it right away for probably a 10-15% profit I held on to it. It’s more than doubled since the IPO so that was probably the right call considering how little I put in.
When I was a stockbroker back in the mid 80’s IPO’s were what every single client wanted. Of course the number of shares of IPO’s was limited and in our firm it was portioned out to the brokers based on their worth to the company. The highest producing brokers got more of the IPO to sell than did the low producers.
Then of course we choose which clients would receive the IPO based on what would benefit us best. If we had a new client that looked to be a “whale” we would certainly give him some of the IPO in order to make him a quick profit and get more business down the road. But for the most part we gave it to our best and most loyal clients. We did have one standing rule and that was no family members could purchase and IPO.
The other “rule” that we had was that it was to be understood that whichever client got our share of the IPO had to be willing to sell it back when it was “called back” from the higher ups. This in my experience usually happened at about an 80% to 100% profit to the client. The reason we needed to get the stock back was so we had shares to trade on the open market. If the original purchasers of the IPO all held their shares, the stock couldn’t trade as there would be no shares to sell to someone else. Of course, the stocks I was selling were small floats and what one would call penny stocks. If a customer refused to sell his shares back that client was forever “banned” from an IPO again.
The whole stock game was very shady in my opinion and while I did make a ton of money while I did it, I am glad that I am no longer in the business. I was 19 years old and I didn’t have a clue as to what I was doing. I didn’t know any better and sold what I was told to sell. I made an incredible amount of money, but eventually realized that I had no business doing what I was doing and quit. I can tell you from experience that most brokers that I knew (not saying all are this way) were certainly more concerned about making a commission than they were about making money for the client. If you were up against a wall and had a mortgage payment and car payment coming up I saw more than one broker sell a high commission product to make as much as he could, regardless if it was the right move for the client or not. The penny stock firms of the 80’s were truly the used car salesman of the era. I hope that it wasn’t the same with the more established firms but I wouldn’t doubt it.