By Darren Chervitz, CBS MarketWatch

In the sometimes mundane world of investing, initial public offerings are shrouded in mystique.

The world of newly public companies, after all, remains off limits for most individual investors, although that is slowly beginning to change.

Apart from the sex appeal and the potential for big returns, however, investing in IPOs is risky business. One simple fact anybody interested in jumping in the new issue market should know: Year in and year out, IPOs have historically underperformed the broader market.

Obviously, investors need to get beyond the allure and hype of IPOs and become educated about the facts.

Following are some definitions of terms commonly used in the IPO market.

American Depositary Receipts (ADRs) — These are offered by non-US companies wishing to list on a US exchange. They are called "receipts" because they represent a certain number of a company's regular shares.

Aftermarket performance — Used to describe how the stock of a newly public company has performed with the offering price as the typical benchmark.

All or none — An offering which can be canceled by the lead underwriter if it is not completely subscribed. Most best-effort deals are all or none.

Best effort — A deal in which underwriters only agree to do their best to sell shares to the public, as opposed to much more common bought, or firm commitment, deals.

Book — A list of all buy and sell orders put together by the lead underwriter.

Bought deal — An offering in which the lead underwriter buys all the shares from a company and becomes financially responsible for selling them. Also called firm commitment.

Break issue — Term used to describe a newly issued stock that falls below its offering price.

Completion — An IPO is not a done deal until it has been completed and all trades have been declared official. Usually happens about five days after a stock starts trading. Until completion, an IPO can be canceled with all money returned to investors.

Direct Public Offering (DPO) — An offering in which a company sells its shares directly to the public without the help of underwriters. Can be done over the Internet. Liquidity, or the ability to sell shares, in a DPO is usually extremely limited.

Flipping — Buying an IPO at the offering price and then selling the stock soon after it starts trading on the open market. Greatly discouraged by underwriters, especially if done by individual investors.

Greenshoe — Part of the underwriting agreement which allows the underwriters to buy more shares — typically 15% — of an IPO. Usually done if a deal is extremely popular or was overbooked by the underwriters. Also called the overallotment option.

Gross spread — The difference between an IPO's offering price and the price the members of the syndicate pay for the shares. Usually represents a discount of 7% to 8%, about half of which goes to the broker who sells the shares. Also called the underwriting discount.

Indications of interest — Gathered by a lead underwriter from its investor clients before an IPO is priced to gauge demand for the deal. Used to determine offering price.

Initial public offering (IPO) — The first time a company sells stock to the public. An IPO is a type of a primary offering, which occurs whenever a company sells new stock, and differs from a secondary offering, which is the public sale of previously issued securities, usually held by insiders. Some people say IPO stands for "Immediate Profit Opportunities." More cynicIt's Probably Overpriced."