Robinhood Markets Inc.’s initial public offering is stirring interest among individual investors.

The trading app, which now has 22.5 million funded accounts and fueled a number of meme stock rallies in the past year, is urging its own customers to invest. The company plans to sell its users up to 35% of its IPO shares, or up to 18.3 million shares. This past Saturday, the company’s executives held a virtual roadshow specifically for mainstream investors.

There’s plenty to know if you’re watching this hotly anticipated IPO, which will be a test of whether individual investors want to stay on the sidelines or jump into this type of investing.

What’s unique about Robinhood’s IPO?

Typically, nearly all shares of a company aren’t available to individual investors before they start trading and the bulk of shares in an initial public offering are given to institutions. Recently, firms such as Robinhood and SoFi have started to offer IPOs at offering price to their customers as part of their mission to make markets accessible.

The offering price of an IPO is the price at which a company like Robinhood makes its shares available to investors before trading. The opening price is the price at which a company begins trading—which could immediately jump, stagnate or plummet, depending on how the market values the company.

For Robinhood’s own IPO, the company has stated that it plans to sell its users between 20% and 35% of its IPO shares through the app’s IPO Access feature.

When can I buy Robinhood shares?

The IPO is expected to price Wednesday, July 28, and start trading Thursday, July 29.

Robinhood customers can find the stock (HOOD) via the IPO Access feature on its app and request shares. The company randomly selects customers who get to purchase shares. Once the price is set, selected customers will receive an update and the option to edit, confirm or cancel their order. The order has to be completed and submitted by the user to be processed.

Like E*Trade, Robinhood doesn’t have minimum asset requirements for its users to buy IPO shares common at other brokerages.

For example, Fidelity requires customers to have at least $100,000 and up to $500,000 in assets to participate in traditional IPOs. Schwab requires $100,000 in assets or 36 trades in the past year.

What should I consider when investing in an IPO?

Investing in an initial public offering is different from buying stocks or an index fund.

Typically, individual investors get very limited IPO access, said Reena Aggarwal, professor of finance at Georgetown University and director of the Georgetown Center for Financial Markets and Policy.

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“You’re not in the driver’s seat,” she said. “You take what you get. It all depends on the supply and it’s very, very restricted.”

Brokerages including Schwab, Fidelity, Robinhood and SoFi have started to give their customers access to a selection of IPOs . But Jay Ritter, professor of finance at the University of Florida, cautioned these investors to keep risk at the top of their mind.

“These are younger companies, and for a growth company like Robinhood, if they don’t execute and don’t grow their profit, the stock price is going to collapse,” he said. “But on the other hand, it could be the next Tesla.”

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges as it looks forward to its IPO. Photo illustration: Jacob Reynolds/WSJ The Wall Street Journal Interactive Edition

What are the potential upsides and downsides?

The legendary IPO pop normally occurs on the first day, and that momentary jump can bring huge boons to shareholders. Robinhood customers are allowed to sell IPO shares within 30 days, known as flipping, but if they do so they won’t be able to use IPO Access for 60 days.

Since 1980, standard U.S. exchange-listed IPOs have on average risen about 18% from their pretrading offering price to the close of first-day trading, according to data from Prof. Ritter. For operating company IPOs so far this year, Prof. Ritter said, the average first-day jump has been 33%.

With a buzzy IPO like Robinhood, given the demand for shares and the limited availability for individual investors, Prof. Ritter doesn’t expect to see individuals getting rich overnight.

“I expect a fairly large fraction of their clients will ask for shares, and Robinhood will spread it around,” he said.

Don’t expect a steady rise without some volatility, said Prof. Aggarwal. With more retail participation in this IPO, investors should expect some ups and downs. “We’ve seen individual investors get driven by sentiment quite a bit,” she said, referring to forums like WallStreetBets and the fast-changing nature of retail rallies seen earlier this year.

Robinhood could face more scrutiny from regulators. In June, the company agreed to pay nearly $70 million to settle an investigation by the Financial Industry Regulatory Authority. The practice of payment for order flow, a main source of Robinhood’s revenue, is also facing a review by the Securities and Exchange Commission.

How have Nasdaq IPOs performed?

IPOs making a debut on the Nasdaq in 2020 typically saw a 40% jump from offer price to open price, according to research from Prof. Aggarwal.

IPOs involving a large number of individual investors can be hard to predict.

Prof. Ritter made a prediction when Facebook went public in 2012. He expected the company stock to jump 30%. But it didn’t—in fact, over the following months, the stock plummeted.

“Individual investors got a bigger proportion of the Facebook IPO than the average IPO, but it didn’t jump, and in fact, over the next six months, it dropped 50%,” Prof. Ritter said. “So this is the problem with IPO investing. The ‘hot’ companies are harder to get shares in than the ‘cold’ IPOs.”

How much should I invest?

For those who are trading from personal funds, Prof. Ritter recommends keeping a careful eye on how much of a specific portfolio is invested in riskier alternative assets, like IPOs, bitcoin or private equity.

“Not all IPOs are the same,” Prof. Ritter said. “There is the potential to lose everything.”

While there’s no hard and fast rule, Prof. Ritter said investors shouldn’t put in more than they can afford to lose.

What will Robinhood do with the money?

In its prospectus, the company said some $342 million will go to repaying debt. Other proceeds will go to expanding its workforce and customer-support operations, as well as capital needs.

During the roadshow for its customers Saturday, CEO Vlad Tenev said the company will expand products and services with the funds raised as well as other initiatives, such as exploring adding IRAs and Roth IRAs, to help turn short-term investors into long-term ones.

Jason Warnick, Robinhood’s CFO, said the company currently has no plans to pay dividends.

—Peter Rudegeair contributed to this article.

Write to Julia Carpenter at Julia.Carpenter@wsj.com