When a company goes public, you'll see two different prices thrown around, and confusing them is how a lot of everyday investors get a nasty surprise. They're called the offering price and the opening price, and the difference between them matters more than almost anything else about an .

The

The offering price (sometimes called the IPO price) is set the night before the starts trading. The company and its bankers pick a number (say $20 a share) and sell shares at that price to a select group of mostly large, institutional investors. This is the headline number you see in the news: 'Company X priced its IPO at $20.'

The

The opening price is what actually happens the next morning, when shares hit the open market and anyone can trade them. Now supply and demand take over. If everyone's excited, the first real trade might happen at $35, not $20. That first market price is the opening price, and it can be wildly different from the offering price.

Regular investors almost never get the offering price. By the time you can click 'buy,' you're trading at the opening price, the higher, hyped-up one. The cheap seats were already taken before the market opened.

Why this trips people up

Picture that $20 IPO that opens at $35. The news cheers a 75% 'first-day pop.' But that gain went to the insiders who bought at $20. If you bought at the $35 open and the stock drifts back toward $25 over the following weeks (which happens often), you lost money on the same IPO the headlines called a smash hit.

Tip
When you read 'the stock soared on its first day,' ask: soared from which price? The pop is measured from the offering price almost nobody outside the deal could buy at. Your starting line is the opening price, and it's usually much higher.

None of this means IPOs are bad, just that the exciting number isn't the one you'd pay. Knowing the gap between offering and opening price turns a confusing headline into something you can see clearly: who actually got the deal, and who's buying the hype.