There are two common types of IPOs:

A fixed price and a book building offering. Please see detailed information below.

Fixed Price

A fixed price IPO is simply that—fixed. The price is set and doesn’t change. However, the final price is typically unknown until the offering. This is because companies consider a variety of factors in the pricing, such as market conditions and investor demand. To participate in this type of IPO, investors have to pay the full fixed price. Typically, most of the current IPOs in the stock market are of this type.

However, the IPO price may not be what the company’s shares open at on the first trading day. For example, the Airbnb (Nasdaq: ABNB) IPO priced at $68. But its opening trade price was $146.

Book Building

Instead of a fixed price like the one above, the second type of IPO, book building involves bids. The company provides a price band for investors. This includes the floor and cap bids. The floor is the minimum whereas the cap is the maximum. This gives a pricing guideline.

During bidding, investors say how many shares they want and what they’re willing to pay for them. Once bidding closes, the company decides the final price.

Although these are the two main types of IPOs, it can be categorized further based on how a company decides to go public.