Many clients ask why the actual number of shares purchased during the latest IPO's is less than expected. This is indeed what happens, and here is why.
Reason 1: Demand Exceeds Supply
The actual number of shares purchased during an IPO depends on supply and demand. Often, the amount of shares coming from our clients' joint application alone exceeds the share number for the entire IPO! In such cases, the underwriters will only process a part of the application, and thus, each client will receive fewer shares than specified in the order. With such partial allocation, you are paying only for the actually purchased shares, the rest of the funds being credited back to your account.
Reason 2: Risk Management Requirements
IPO investment is one of the most profitable, but at the same time one of the most risky instruments. In such conditions, following the reasonable risk management requirements, especially for beginner investors, is both encouraged by the company management and stipulated by the regulators. This is why all IPO investors are advised to have a diversified portfolio of liquid securities.
Not sure how to build a portfolio? The Freedom Finance analysts have recently created a balanced portfolio of 12 stocks for 2020-2021; you are welcome to use their recommendations. Remember about the Investment Ideas section, which will help you understand which securities are currently the best to invest.