IPOs: What to know

Why does a company decide to offer an IPO?

There are many reasons a company might make a move to the public sector: to acquire more growth, to raise capital, to let early investors cash out their investments, to garner publicity and excitement. The IPO process can be costly and time-consuming, so companies who decide to go public are hoping that the benefits far outweigh the costs.

What’s the difference between an IPO and a SPAC?

While an IPO is the initial offering of shares from a private company to the public, a special purpose acquisition company (SPAC) is a shell company that doesn’t have any business operations but raises capital to assist with the future acquisition of another company.

How’s an IPO’s issue date determined?

Once an IPO is approved by the SEC, the company and its underwriters will determine the trade date—although this date is subject to change. Investors can check the latest updates for any given listing on their preferred search engine.

What order type can I place before the IPO trades on the secondary market?

A new security is normally uploaded to the Vanguard website no later than 9 a.m., Eastern time, on the day it’s set to begin trading on the secondary market. At that time, you may only place limit orders since the actual price could be higher or lower than the preindication price. Once the security begins trading on the secondary market, you can then place other order types. 

Limit order:  an order to buy or sell stock with a restriction on the price (a maximum price to buy, or a minimum price to sell).

Preindication price:  a prediction of what the IPO opening price will be when the security starts actively trading on the secondary market. 

Can I select “good-till-canceled (GTC)” or “day” as my order duration before the security trades on the secondary market?

Yes, both GTC and day orders can be placed before an IPO hits the secondary market. If a GTC order is placed but the IPO doesn’t open for trading on the same day, the GTC order will be canceled at the end of the trading day (4 p.m., Eastern time). Day orders are always canceled at the end of the trading day if they’re not executed before the market closes. 

GTC order:  an order to buy or sell a stock that remains open for 60 days after the business day on which the order was placed or until the order is executed or canceled. If this day falls on a weekend or holiday, the order will be canceled on the next business day before the market opens.

Day order:  an order to buy or sell a stock that will expire automatically at the end of the trading day unless it’s executed or canceled. All orders are day orders unless otherwise specified. 

How can I place an order? 

You can place trades either online or by phone. But keep in mind that when you trade online, you won’t be charged a transaction fee. Placing trades by phone may result in a $25 broker-assisted fee.

Learn more about our trading fees