Price Band

Written By
Paul Tracy
Updated November 4, 2020

What is Price Band?

A price band is a price floor and a cap between which a seller will let buyers place bids on a security, usually during an initial public offering (IPO)

How Does Price Band Work?

For example, let's say Company XYZ is going to go public. As part of the IPO process, Bank ABC (Company XYZ's investment bank) sets a price band on its shares of $45 to $50 per share. This means that buyers must bid at least $45 a share for the first issue of the shares.

Why Does Price Band Matter?

Some markets also use price bands as "circuit breakers" to prevent extreme fluctuations in market prices. In these situations, if a security's price rises by, say, 10% of its opening price or within a certain time limit, the exchange suspends trading on that security for several minutes in order to calm the markets and allow sellers and buyers to find each other in a more orderly way.

Price bands are used to provide guidance to buyers. They are also frequently used in importing and exporting, whereby countries set top and bottom prices for certain goods sold within its borders. Countries then subject goods whose prices fall below a certain price to taxes or duties to force the price back into the band.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Price Band.
Be the first to ask a question

If you have a question about Price Band, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Price Band, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Price Band

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms