What is the price ceiling? How to calculate the ceiling price of securities?

In the concept of price, especially in the field of securities investment, we often hear about the "ceiling price". So What is the ceiling price?? How to calculate the ceiling price of securities?

Let's find out through the content of the article!

See more:

What is the price ceiling?

Price ceiling (also known as Price ceiling in English) is the maximum price that the government forces sellers to comply with.

What is the price ceiling?
What is the price ceiling?

The purpose when the state sets a price ceiling is to protect consumers, ensure the market is not manipulated by "sharks", influential investors.

The price ceiling policy is often applied in a number of markets such as housing market, capital market, stock market, etc.

What is the stock price ceiling?

The ceiling price of securities is the lowest price at which investors should sell their holdings. This can be a price that investors set themselves, so that when the stock price drops to this level, they will sell.

The application of a stock price ceiling is the best loss-limiting strategy.

Stock price ceiling
Stock price ceiling

On the stock price list at the exchanges, the prices are specified by colors to help investors easily distinguish. For securities, according to the regulations of HOSE and HNX, this price will be listed in purple color.

What is a price ceiling in macroeconomics?

In macroeconomics when the equilibrium price in the market is considered too high, by setting a lower price ceiling, the government hopes that consumers will buy the good at a low price and this is considered is of great social significance as low-income people still have access to important goods.

This policy is often applied in some markets such as housing market, capital market, etc.

In macroeconomics
In macroeconomics

Assuming that there is no government intervention, the market is in equilibrium at point E, with price P* and output Q*. If P* is considered too high, the government sets a price ceiling of P1 where P1 is lower than P*. At price P1, quantity supplied decreases to QS1 and quantity demanded increases to QD1.

The market is no longer in equilibrium. In the market, there is a shortage of goods or an excess of demand because the quantity demanded is greater than the quantity supplied.

Price ceiling in the free market

In the free market, the oversupply is only temporary because it creates upward pressure on prices. And this causes the excess demand to be gradually eliminated. Then the market moves to the equilibrium point.

Here, however, government regulation of price ceilings prevents prices from rising beyond P1. This keeps the market from returning to equilibrium.

Consequences of a shortage of a good are: At price P1 many consumers cannot buy a good to satisfy their needs; queuing occurs, making purchases take longer; The underground market has an opportunity to arise due to the scarcity of goods…

These consequences can harm the interests of consumers. Not as initially expected by the state.

What is the floor price?

Price Floor is the opposite of ceiling price, this is the lowest price in a trading session where investors can buy and sell securities. And you will not be able to place an order at a price lower than the floor price.

How to calculate ceiling price, stock floor price?

The ceiling price of securities is calculated based on the reference price and the fluctuation range of the exchanges.

How to calculate ceiling price:

Ceiling price = Reference price x (1 + Range)

How to calculate floor price:

Floor price = Reference price x (100% – Range)

Reference prices

It is understood as the closing price (execution price of the last order matching) of the previous trading day. Each exchange will have a different way of calculating the reference price. Specifically:

  • HOSE Exchange (Ho Chi Minh City Stock Exchange): The reference price of stocks and fund certificates being traded is the closing price of the previous most recent trading day (except for special cases).
  • HNX: The reference price is determined by the closing price of the preceding trading day (except for special cases).
  • UPCOM floor: The reference price is the weighted average of the transaction prices executed by the continuous order matching method of the previous most recent trading day (except for special cases).

Oscillation amplitude

This is a term that represents the percentage of a stock's price that can rise or fall during a trading session. In other words, the ceiling price and floor price of a trading session are equal to the reference price plus minus the fluctuation range.

HOSE regulates margin ratio at 7% while HNX and UpCom are 10% and 15% respectively. This is the concept used to determine the minimum price in a security, which we will explore in the next section.

See details of the fluctuation range of the following 3 stock exchanges:

ProductHOSEHNXUPCOM
Stocks, Fund Certificates, ETFs7%ten%15%
New shares registered for trading on the first trading day and shares without trading for more than 25 consecutive trading sessions, on the first day of trading again20%30%40%
BondsNo specifiedNo specifiedNo specified
In case of paying dividends/bonuses in treasury shares to existing shareholders on the ex-dividend dateNo specified30No specified

Example of how to calculate ceiling price of Securities

To better understand how the ceiling price of a security is calculated, you can follow the following example:

BVH shares on HOSE have a reference price of 79.0 VND (79,000 VND/share). Trading margin on HOSE is 7%. Applying the formula, you will calculate the ceiling price as: 79.0 * (1 + 7%) = 84.53 (84,530 VND / share).

Investors can trade higher than the price of 84,530 VND/share.

Note: For the stock price list on HOSE, the ceiling price of securities will have some adjustments for special cases as follows:

In case stocks, closed-end fund certificates, ETF certificates have a ceiling price when adjusting the fluctuation range + 7% but the ceiling price is still equal to the reference price, the adjustment will be:

Adjusted ceiling price = Expected reference price + one quote unit

In case the ceiling price of stocks, closed-end fund certificates and ETF certificates after adjustment in the above manner is equal to 0 (0), the adjustment shall be as follows:

Adjusted ceiling price = Reference price + a listed unit price.

Regulations on ceiling prices in securities

On the stock price list at the exchanges, the prices are specified by colors to help investors easily distinguish. For securities with ceiling price, according to regulations of HOSE and HNX, ceiling price will be listed in purple color.

The ceiling price on HNX is regulated as purple
The ceiling price on HNX is regulated as purple

In addition, at some securities companies, investors can read the ceiling price by looking at the symbol. Accordingly, the ceiling price will be added with the CE (celling) symbol, the floor price will be added with the FL (floor) symbol next to it.

Especially in securities, the ceiling price is applied the rounding rule to solve the problem when the reference price multiplied by the fluctuation range will produce an odd number. With regulations like these, it will help investors easily distinguish as well as learn more about those securities.

Compare ceiling prices, floor prices and reference prices

What is the floor price?

Stock floor price is the lowest price at which an investor can place an order to buy or sell securities during the trading day.

Calculation formula:

Floor price = Reference price x (100% – Range)

For example: On the HNX, stock code A has a reference price of 23.0 (VND 23,000/share).

Price ceiling = 23.0 + (10% * 23.0) = 25.3
Floor price = 23.0 – (10% * 23.0) = 20.7
Thus, we can only place trading orders in the price range from 20,700 to 25,300 VND/share.

What is the reference price?

It is understood as the closing price (execution price of the last order matching) of the previous trading day. Each exchange will have a different way of calculating the reference price.

Specifically:

  • HOSE Exchange (Ho Chi Minh City Stock Exchange): The reference price of stocks and fund certificates being traded is the closing price of the previous most recent trading day (except for special cases).
  • HNX: The reference price is determined by the closing price of the preceding trading day (except for special cases).
  • UPCOM floor: The reference price is the weighted average of the transaction prices executed by the continuous order matching method of the previous most recent trading day (except for special cases).

Distinguish between ceiling prices and floor prices in securities

The following table will help you understand as well as distinguish ceiling prices and floor prices in securities:

Distinguishing CriteriaCeiling priceFloor price
ConceptThe ceiling price is the highest price at which an investor can place an order to buy or sell securities during the trading day.Stock floor price is the lowest price at which an investor can place an order to buy or sell securities during the trading day.
Calculation formulaCeiling price = Reference price x (100% + range).Floor price = Reference price x (100% – fluctuation range).
Color rulesThe price ceiling is shown in purple on the price listFloor prices are shown in blue on the price list

Conclusion

When investing in the stock market, investors must understand the operating rules and definitions of prices, especially ceiling prices, floor prices, reference prices, etc. The content of this article has been provided. full of information to help you answer the question "what is the ceiling price". Good luck!

Information edited by: lamchutaichinh.vn

0 Comments