1. What an IPO actually is
Quick Answer: An IPO, or initial public offering, is the sale of a private company’s shares to public investors for the first time. The company and its banks set one price, sell a block of shares at that price the night before trading starts, and the stock then trades freely on an exchange. It is the moment a company becomes something you can hold in an ordinary investing account.
Two things are happening at once, and confusing them is where most of the trouble starts.
- A private sale at a fixed price. Investment banks buy a block of shares from the company and resell them at the offer price to a list of clients. This is the actual IPO, and it happens off-exchange.
- A public market opening. The next morning, whoever holds those shares can sell them to anyone. The opening price is whatever buyers will pay, which is often well above the offer price.
When a headline says a stock “jumped 40% on its first day,” it is comparing those two numbers. That gain went to the people who bought at the offer price. If you bought at 9:45 a.m. on the exchange, you paid the higher number and captured none of it.
So the real question behind what is an IPO is not the definition. It is which of those two doors you are walking through.
Which door your broker opens depends on the broker.
Offer-price access, fees and account minimums vary a lot between platforms. Compare brokerage accounts →
Here is a short explainer that walks through the same ground before we get to the numbers.
2. How a company gets from private to public
Quick Answer: The company files a registration statement with the SEC, publishes a preliminary prospectus with a price range, tours institutional investors, then prices the deal the night before trading. Only after all of that does the ticker appear on an exchange and become eligible for index membership like the S&P 500.
Every step of that sequence leaves a public paper trail, and the prospectus is the part worth your time. It carries the financials, the risk factors and the ownership structure, and you can pull it free from the SEC’s EDGAR database.
- Registration. The filing goes public. Financial statements, lawsuits and customer concentration all show up here.
- Price range published. The banks print a range, which can move before pricing.
- Book building. Underwriters collect orders from institutions to see where real demand sits.
- Pricing. The final offer price is set, usually the evening before the stock trades.
- Allocation and first trade. Shares are handed out, then the exchange opens the stock, sometimes not until midday.
The gap between step four and step five is the whole story. The offer price is negotiated. The opening price is discovered.
3. The first-day pop, and who actually gets it
Quick Answer: US IPOs have gained an average of 19.0% on their first day since 1980, and 29.3% in 2025. That gain belongs to whoever bought at the offer price. It is a one-day event you cannot spread out, which is the opposite of how dollar-cost averaging works.
| Year | IPOs | Mean first-day return | Money left on the table |
|---|---|---|---|
| 2019 | 113 | 23.5% | $6.95B |
| 2020 | 165 | 41.6% | $29.66B |
| 2021 | 311 | 32.1% | $28.65B |
| 2022 | 38 | 48.9% | $0.99B |
| 2023 | 54 | 11.9% | $1.92B |
| 2024 | 72 | 15.3% | $3.72B |
| 2025 | 90 | 29.3% | $13.11B |
| 1980–2025 average | 9,343 | 19.0% | $250.1B total |
Source: Jay R. Ritter, University of Florida, Initial Public Offerings: Updated Statistics, Table 1, July 2026. Excludes offers under $5.00, unit offers, SPACs, closed-end funds and REITs.
“Money left on the table” is the gap between the offer price and the first day’s close, multiplied by shares sold. Since 1980 it adds up to roughly $250 billion, and that pot is the prize allocation-hunters are chasing.
Notice 2022. The pop was the biggest in the table at 48.9%, but only 38 companies listed and under $1 billion was left on the table. A big percentage on a tiny deal is a small opportunity.
4. Where IPO returns actually land three years later
Quick Answer: Across 9,195 US IPOs from 1975 to 2021, 60% lost money over the following three years measured from the first closing price, and the median result was −25.7%. The averages look positive only because a handful of enormous winners drag them up, the same skew you see in growth versus value investing.
| Three-year result | Share of all IPOs |
|---|---|
| Lost more than half |
38.5% |
| Down, but less than half |
21.5% |
| Up 0% to 50% |
14.5% |
| Up 50% to 100% |
9.5% |
| Up 100% to 200% |
8.3% |
| Up 200% to 500% |
6.0% |
| Up more than 500% |
1.8% |
Source: Jay R. Ritter, University of Florida, Updated Long-run Statistics, Table 16e Panel A, July 2026. Returns run to the earlier of the three-year anniversary or delisting. Bars scaled to the largest share shown.
Read the top two rows together. Six IPOs in ten were worth less three years on than at the end of their first day.
The average three-year return was positive at 21.2%. The median was −25.7%. When those two numbers disagree that badly, the average is describing a lottery, not a typical outcome.
The longer view is no kinder. Over the five years after listing, IPOs returned 10.6% a year against 13.9% for a matched set of same-size companies that were already public, per Ritter’s Table 20.
5. One filter that changes the odds: company size
Quick Answer: IPOs from companies with at least $100 million in trailing sales had a median three-year gain of 2.6%, against −25.7% for the full sample. Revenue at the time of listing is the single cheapest screen available, and it is easier to check than market cap because it sits in the prospectus.
| Measure | All IPOs | Sales $100M+ |
|---|---|---|
| Number of IPOs | 9,195 | 4,112 |
| Median 3-year return | −25.7% | +2.6% |
| Losing money after 3 years | 60.0% | 48.8% |
| Median 5-year return | −32.0% | −1.2% |
| Losing money after 5 years | 60.6% | 49.7% |
| Average first-day return | 18.7% | 13.4% |
Source: Jay R. Ritter, University of Florida, Updated Long-run Statistics, Table 16e Panels A–D, July 2026. Sales are inflation-adjusted to January 2025 dollars. Returns measured from the first closing price.
The trade-off is visible in the last row. Larger companies delivered a smaller first-day pop, 13.4% against 18.7%, and better odds afterwards. You are choosing between a bigger lottery ticket and a better business.
Even the filtered group is not a green light. Roughly half still lost money over five years. It shifts the odds from bad to a coin flip, which is honest progress and nothing more.
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6. What brokers require to get you the offer price
Quick Answer: Offer-price access is rationed. Fidelity asks for $100,000 to $500,000 in retail assets depending on the deal, Schwab applies an asset and knowledge screen, and Robinhood is open to any individual account but allocates at random. Which brokerage account you hold decides whether you can even ask.
| Broker | Who can request shares | How shares are handed out |
|---|---|---|
| Fidelity | $100,000 in retail assets for KKR-sponsored deals; $500,000 for deals via other underwriter relationships; or Private Client Group membership | A predetermined algorithm weighs several factors; requests are often only partly filled |
| Charles Schwab | Investors must meet a minimum liquid net worth threshold and pass an eligibility questionnaire for every offering | Allocation is limited and not guaranteed; you may receive fewer shares than requested or none |
| Robinhood | Any eligible individual account, no stated asset minimum; retirement, joint and managed accounts are excluded | Random selection from all requests; request size does not change your odds of getting an allocation |
| Any broker, day one | Anyone with a funded account and no eligibility test at all | You buy on the exchange at the opening price, after the first-day gain has already happened |
Sources: Fidelity IPO eligibility requirements, Charles Schwab IPO guide and Robinhood IPO Access, retrieved August 2026. Terms change; confirm with your broker before applying.
Fidelity is blunt about why the rationing exists. Lead underwriters send the vast majority of shares to institutions, and only a small percentage of any deal reaches retail investors at all.
One more rule catches people out. Robinhood treats selling within 30 days as flipping and may bar you from IPO Access for 60 days, so an allocation is not a same-day trade.
7. How to request IPO shares, step by step
Quick Answer: You read the prospectus, pass an eligibility questionnaire, submit a conditional offer to buy before the cut-off, then confirm it once the final price is set. Miss the confirmation window and you get nothing, no matter how much you hold or what you pay in fund fees elsewhere.
- Find the offering. Each broker keeps a calendar of upcoming deals. Sign up for alerts, because the whole window can be under a week.
- Read the preliminary prospectus. Brokers make you acknowledge you have seen it. Read the risk factors and the ownership table, not just the pitch.
- Complete the eligibility questionnaire. Schwab requires a fresh one for every offering, because industry insiders are restricted under FINRA rules.
- Submit a conditional offer to buy. Name the number of shares you want at the indicated range. Schwab’s cut-off is generally 4 p.m. ET the business day before pricing.
- Confirm after pricing. Once the final price is set that evening, you must affirm. Schwab’s affirmation window closes at 7 a.m. ET the next morning.
Nothing is charged as a separate fee for an allocation, because the underwriting spread already sits inside the price. And a request is not an order, so plan for the strong chance nothing arrives.
8. Lock-ups, quiet periods and the dates to watch
Quick Answer: Most lock-up agreements stop insiders from selling for 180 days after the IPO, and the price often sags as that date approaches. The quiet period usually ends about 25 days after listing. Both dates are public, which is exactly why traders position around them, sometimes by short selling into the expiry.
The float in the first months is small on purpose. Insiders, employees and early backers are locked up, so a modest amount of buying can move the price a long way in either direction.
- Day 1 to about day 25. The quiet period limits what the company can say beyond its filing, so the price runs on very little fresh information.
- Around day 25. Analyst coverage from the underwriting banks typically begins once the quiet period ends.
- Around day 180. The lock-up expires and insider shares can hit the market. The SEC notes that a stock can fall in anticipation of that supply.
You do not have to guess any of these dates. The lock-up terms are disclosed in the prospectus, and US securities law requires it.
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9. The verdict
Quick Answer: Buy an IPO only with money you can afford to see cut in half, cap it at a small slice of the portfolio, and prefer companies with real revenue. If you would not size the same bet on any other single stock, do not size it here either. That is the honest read across every number on this page.
The market itself is busy again. There were 99 US IPOs raising over $22 billion in the first quarter of 2026, against 84 raising $11.8 billion a year earlier, per the SEC’s July 2026 market statistics release. A busy calendar is not the same as a good one.
A reasonable rule: no more than a few percent of your portfolio across all new listings combined, sized inside whatever asset allocation you already run. That way a median outcome is an annoyance rather than a setback.
10. Frequently Asked Questions
1. What is an IPO in simple terms?
An IPO is the first sale of a private company’s shares to the public. The company and its banks agree on one offer price and sell a block of shares at that price. The stock then starts trading on an exchange, where anyone can buy it at whatever the market will pay.
2. Can a regular investor buy shares at the IPO price?
Sometimes. Fidelity requires $100,000 to $500,000 in retail assets depending on the deal. Schwab applies a liquid net worth threshold plus an eligibility questionnaire. Robinhood takes requests from any eligible individual account and allocates at random. None of them guarantee you shares.
3. Are IPOs a good investment?
The record says be careful. Across 9,195 US IPOs from 1975 to 2021, 60% were worth less three years later than at their first close, and the median three-year result was −25.7%. IPOs from companies with at least $100 million in sales did better, with a median of +2.6%.
4. What is the IPO lock-up period?
A lock-up agreement stops insiders, employees and large shareholders from selling for a set time after the IPO. Most run 180 days. The terms must be disclosed in the prospectus, and the share price can fall ahead of the expiry because the market expects extra supply.
5. Should I buy an IPO on the first day of trading?
Buying at the open means paying the price that already includes the first-day gain, which averaged 19.0% across US IPOs from 1980 to 2025. Nothing stops you, but you are starting from a higher entry price than the investors who received an allocation, with the same long-run odds.
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This article is information, not financial advice. Broker eligibility rules, offering terms and market data change, so confirm current details with your broker and the company’s prospectus before you act. See our full disclaimer.