For new investors, it may be confusing to understand all the terminology surrounding an initial public offering. There are two main types of initial public offerings (IPOs) offered by companies.
Fixed Price Offering
It is very simple to offer a fixed price. The price of the initial public offerings is announced by the company in advance. You agree to fully pay the initial public offering price when you participate in it.
Book Building Offering
Book building offers offer a stock price band of 20 percent. Interested investors then place their bid. The floor price is the lowest price in the price range, while the cap price is the highest. Investors can bid for the amount of shares they wish to purchase and the price at which they will pay. This allows the company test investor interest before the final price is set.