Understanding the details of the stock market is not easy if you are a beginner. An investor who is new to the world of investments needs to study the market for some time, understand the nature of stocks, and spot the existing differences between company strategies and the impact it has on share prices.
IPO comes in use as it enables one to gain a good amount of money in a short time span. However, your decisions need to be timed well and be tactful but not hasty.
Being strategic can bring you good returns and the period of getting the returns can be long or short depending on equities that have been purchased.
The following are a few of the guidelines about IPO that every beginner needs to understand.
Knowing Yourself as an Investor
The path to being a successful investor in the stock market begins with knowing yourself as an investor. Follow a company’s growth closely, ask yourself if you know the sector in which the company is operating, assess the growth potential that the company has, and calculate the returns that you can have over a given period of time.
If you can successfully complete all of these steps, you can deem yourself as ready to invest.
One thing to keep in mind is that you must never borrow money when you are investing in an IPO. The guarantee of returns does not exist and if you suffer a loss, the money is simply irrecoverable.
Besides, the loss will be counted in the interest rate that you pay on that borrowed amount. Thus, a good decision is to use your funds in investing.
Know the Limitations You Have
There is no denying the fact that an IPO investment is highly risky and the markets always remain unpredictable. Consider the amount of loss you can bear before you go forth to make the investment.
Buying any new IPO is quite exciting but do not let the excitement lead you into taking a wrong decision.
Opening a Demat Account
Any investor who is applying for shares needs to have a Demat account. Demat account is the place where the mutual funds, government securities, share certificates, and other financial tools stay deposited in an electronic form.
You will not be able to own any trades or shares in the market without having a Demat account. The Demat account can be opened in any registered Depository Participant.
It is an account that can be opened even when you own zero shares.
Open a Trading Account for Online Trading
Trading online is really coming to the forefront now in the world of stock exchanges. It surely saves time and offers significant convenience on the part of the investor.
The stock market needs you to get registered with stock exchange through the registered members. The trading account you get as such is linked to your bank account.
At the time of purchasing, transfer the amount required from bank to trading account. The trading account will help you to buy the shares and the shares are credited to your Demat account.
Do Not Get Lured By the Big Names
The big names that you will find as a foremost stock broker or in a list of investment banks look tempting enough to buy that IPO which has their backing.
They might have different scales of calculation for that backing.
You need to abide by the facts and figures provided by the company in its prospectus and thus, consider the growth potential it has before investing in its IPO.
Do Not Give In To Hype in the Market
A company that goes public with the investment banks puts in quite a huge amount in the IPO process. They take every opportunity to make it seem like something that is in great demand and thus, you must buy.
Do not fall a victim to such hype and do your own research. Look into the objective details found on the official website of stock exchange and then come to a conclusion.
Wait Until Lock-In Time Ends When Buying IPO Stocks
The lock-in period is a time that stops people who contain pre-IPO stocks from selling the shares.
By waiting for the time when lock-in is over, you put yourself in a better position to calculate the profitability of the stocks. Otherwise, there is a high risk for you to fall prey to volatility.
Relation between IPO’s Performance and Market Trends
The trends of the market are dependent on a number of factors and that includes stocks from more sectors than one. These sectors follow the trend but they are not the ones leading it.
An IPO that is basically strong will do well when the trends of the market are bullish. It is one of the best ways for you to make money.