Did you know that around 54% of retail investors in Indian IPOs sell their allotted shares within a week of listing? This shows how actively participants respond to initial pricing decisions. These decisions often begin with a core component, the bid price. Understanding what is bid price in an IPO helps investors interpret how pricing influences demand, allocation, and eventual market response once the shares are listed. Let’s discuss its details thoroughly in this blog.
What Is a Bid Price?
A bid price is the price an investor is willing to pay for shares in an Initial Public Offering (IPO). This IPO bid price definition is key to the process. When an investor applies for an IPO, they must state this price along with the number of shares they want to buy, which indicates their demand for the stock.
For example, in the Studds Accessories IPO (open from October 30 to November 3, 2025). The price band is set at ₹557 to ₹585 per share. When you apply for this IPO, you can choose any bid price within this range. Say, if you bid for one lot (25 shares) at ₹570 per share, this ₹570 is your bid price. The actual allotment will depend on whether your bid matches or exceeds the final cut-off price that is determined after all bids are collected.
This example shows how your chosen bid price directly affects your chances of receiving shares in the IPO.
How Bidding Works in an IPO
The bidding process in an IPO consist of several key components:
- Price Band, Floor Price & Cap Price
A company offering shares sets a price band, which is a range of prices. Within this range, the minimum value is called the floor price, while the maximum value is known as the cap price. Bids from investors must be submitted at a price that lies between this specific range. For example, in a ₹100-110 price band, ₹100 is the floor and ₹110 is the cap. This band helps the company gauge investor interest at different price points.
- Cut-off Price vs Bid Price
The bid price is the specific price an investor chooses to pay for the shares. In contrast, the cut-off price is the final, single price fixed by the company after all bids are collected. This price is decided after evaluating the overall demand received from all categories of investors. Individual retail applicants can choose to bid at the ‘cut-off price,’ allowing them to apply without specifying an exact bid amount. This means they agree to pay whatever price is finalised by the company, which can increase their chances of receiving shares.
- Difference: Bid vs Ask / Offer / Ask Price
In simple terms, the bid indicates the amount a buyer agrees to pay for a share. The ask or offer price shows the amount a seller expects to receive for their shares. In the regular stock market, the bid price typically stays below the ask price, and the gap between them is referred to as the spread. While bid vs ask in IPO is a common term, the ask concept is more prominent in daily stock trading after the IPO is complete and the shares are listed on an exchange.
IPO Pricing Methods & Where Bid Price Fits
The IPO pricing method determines how the share price is set, which affects how bids are used. The main methods are:
- Fixed Price IPO
The first approach is the fixed price IPO, where the company pre-decides a single offer price for its shares before the subscription period begins. Investors know exactly what they will pay. There is no price band and no bidding process based on price; investors simply apply to buy shares at this single price. The concept of a bid price is not used here as the price is already determined by the company.
- Book Building IPO
This is the most common method that uses bids. In this method, the company announces a price band that includes both a lower limit (floor) and an upper limit (cap). Investors submit their bids within this price band, indicating both the quantity of shares and the rate they wish to pay. The bid price in IPO meaning is most relevant to this method. The final “cut-off” price is then determined based on the demand shown by all the bids received.
- Dutch Auction / Sealed Bid IPOs
Though less common, a Dutch auction is another method. In this process, bidders mention how many shares they intend to purchase along with the price they are prepared to offer. After all bids are collected, the company determines the lowest bid price that will allow it to sell all available shares. All successful bidders then pay this same price.
How to Bid in an IPO: Step-by-Step
Learning how to bid IPO involves a few simple steps, which include:
- Choosing Your Bid Price (floor, mid, cap)
An investor must first decide on a bid price within the given price band. Bidding at the floor price (the lowest price) might be less likely to result in an allotment if the issue is very popular. Bidding at the cap price (the highest price) generally increases the chances of getting shares. Retail investors can also select the “cut-off” option, which means they agree to pay the final determined price, whatever it may be.
- Bid Quantity & Lot Size
Investors cannot bid for single shares. Shares are offered in groups called a “lot size”. The company sets this minimum lot size (e.g., 15 shares). An investor must bid for at least one lot, or in multiples of that lot (e.g., 15, 30, or 45 shares). To find the total bid value, multiply the number of shares applied for by the bid price per share.
- Revising / Cancelling Bids
During the IPO subscription period, which usually lasts for three days, investors have the flexibility to change their minds. They are allowed to modify their bid price or the number of lots they applied for. They can also choose to cancel their bid entirely, as long as it is done before the official bidding window closes.
Allotment Mechanism & Oversubscription
After the bidding period ends, the company begins the allotment process, which has rules for handling high demand, such as:
- Pro rata / Lottery in Oversubscription
Oversubscription happens when the total demand for shares (from all bids) is higher than the number of shares the company offered. If this occurs, the company may allot shares on a pro-rata basis. This means investors receive shares in proportion to the number they applied for.
For example, if the IPO is oversubscribed two times, an applicant for 30 shares might only receive 15. In cases of very high oversubscription, especially in the retail category, a lottery system may be used to allot the minimum lot size to a limited number of applicants.
- What Happens if Your Bid Price < Cut-off
If an investor places a specific bid price IPO that is lower than the final “cut-off price” determined by the company, their bid is considered ineligible. In such cases, the bid gets rejected, and no share allotment is made to that particular applicant. The full amount paid for the application is then refunded to the investor’s bank account.
Conclusion
Understanding what is bid price in IPO is the first step in the share application process. This price is your offer within the company’s set price band, and it directly influences the final cut-off price. Knowing how your bid functions is essential for working through the book-building method, as it eventually determines whether your application is considered for the allotment of shares.
FAQ‘s
The bid price is the specific price an investor is willing to pay for shares within the IPO’s price band. It signals demand and influences final pricing, allowing investors to express how much they want to pay during the book-building process.
The bid price is your chosen offer within the IPO price band, while the cut-off price is the final issue price set after reviewing total demand. Investors bidding at or above the cut-off price are typically allotted shares.
No, bids below the cut-off price are considered invalid and will not be allotted shares. Investors who bid below this final price will get their application money refunded without receiving shares.
Choose your bid price based on your assessment of the company’s value and market demand. Bidding at the lower band may reduce allotment chances, while bidding near the upper band or selecting the cut-off option increases the likelihood of receiving shares.
You can place only one bid per category (retail, HNI, institutional) for an IPO. During the subscription period, you may revise or withdraw your bid once before the bidding window closes.
If your bid price is too low, below the final cut-off price, your bid will be rejected, and you won’t receive any shares. The full application amount will be refunded to your bank account without interest.
The bid price is the highest amount a buyer is willing to pay for shares, while the ask price (or offer price) is the lowest price a seller accepts. In IPOs, the bid price is used for share allocation, unlike general market trading.
