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Confused: Buying after IPO is a complex instrument?


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Posted (edited)

I tried to buy a stock tonight, Global E.

 

An announcement popped up saying," Your account isn't set up for complex instruments. You need to fill out this form to set it up"

 

The form was to acknowledge the risks of these complex instruments.

 

It just IPOd yesterday. I don't see what is risky or what makes it a complex instrument.

 

Is it cos of the lock up period?

 

I wasn't using margin or buying options. I have been buying stock for 5 years. I always stay away from that stuff. I just like buying shares.

 

Thanks

Edited by 2009
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Posted (edited)

Yes, it means you need to be a qualified investor to buy those instruments

 

because of the highly speculative nature of IPOs in the early days, retail investors are locked out by most brokers (maybe with a few exceptions), it's mostly for big institutions and big players

 

your broker will ask you to fill a form with question regarding your knowledge and level of wealth to determine if they can change your "investor profile" to "qualified investor"

 

it's an investor protection measure, perfectly legitimate.

Edited by GrandPapillon
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Posted (edited)
3 hours ago, GrandPapillon said:

Yes, it means you need to be a qualified investor to buy those instruments

 

because of the highly speculative nature of IPOs in the early days, retail investors are locked out by most brokers (maybe with a few exceptions), it's mostly for big institutions and big players

 

your broker will ask you to fill a form with question regarding your knowledge and level of wealth to determine if they can change your "investor profile" to "qualified investor"

 

it's an investor protection measure, perfectly legitimate.

 

Thank you

 

So the only risk here is that it is an IPO?

 

So, the total risk is that the stock could go to zero?

 

I don't have to cover my position (with margin) or anything like that?

 

I don't use margin anyway. I just want to buy the shares

 

 Could it be that I can't sell for 180 days after buying? Is that why extra measures are taken?

 

 

 

 

 

 

 

Edited by 2009
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4 hours ago, GrandPapillon said:

Yes, it means you need to be a qualified investor to buy those instruments

 

because of the highly speculative nature of IPOs in the early days, retail investors are locked out by most brokers (maybe with a few exceptions), it's mostly for big institutions and big players

 

your broker will ask you to fill a form with question regarding your knowledge and level of wealth to determine if they can change your "investor profile" to "qualified investor"

 

it's an investor protection measure, perfectly legitimate.

Funny really when all and sundry are buying crypto currencies with zero knowledge

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1 hour ago, 2009 said:

 

Thank you

 

So the only risk here is that it is an IPO?

 

So, the total risk is that the stock could go to zero?

 

I don't have to cover my position (with margin) or anything like that?

 

I don't use margin anyway. I just want to buy the shares

 

 Could it be that I can't sell for 180 days after buying? Is that why extra measures are taken?

 

 

 

 

 

 

 

 

It is a US SEC requirement that certain types of securities can only be sold to "qualified investors", or QIs, due to the level of risk of the security.  Pre-IPO shares and hedge funds fall into this category as may others.  It is intended to protect the smaller retail investor from assuming risk that is disproportionate to their financial status and investment knowledge. In order to be classified as a QI in the US, an investor needs to have either an annual income for the past two years of USD$200,000, with an expectation that it would continue, or a net worth of more than USD1 million. 

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On 5/14/2021 at 8:05 AM, scubascuba3 said:

Funny really when all and sundry are buying crypto currencies with zero knowledge

indeed, good point, but cryptos are regarded as "coins", not securities, and "coin" dealers are poorly regulated in the US, they get away with a lot of <deleted>, basically pawn shop dealership, hence the explosion of crypto exchanges without a full regulatory registration

 

that might change soon though,

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Posted (edited)
On 5/14/2021 at 8:57 AM, Etaoin Shrdlu said:

It is a US SEC requirement that certain types of securities can only be sold to "qualified investors", or QIs, due to the level of risk of the security.  Pre-IPO shares and hedge funds fall into this category as may others.  It is intended to protect the smaller retail investor from assuming risk that is disproportionate to their financial status and investment knowledge. In order to be classified as a QI in the US, an investor needs to have either an annual income for the past two years of USD$200,000, with an expectation that it would continue, or a net worth of more than USD1 million. 

 

you can buy some "IPOs" ETF these days open to the public, they will invest into IPOs for you. The problem is you can't really time your exit since they will hold all kind of IPOs with different start date. Not sure if they are worth it.

 

IPOs are considered speculative because they will go up quickly for a few days, and 90% of the time, fall back below to the introductory price within a few weeks or months. It's a bit like a legalized pump and dump scheme. Hence why it's reserved to the big players who can monitor closely those deals, and afford the losses.

Edited by GrandPapillon
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