Ceiling Price and Floor Price in Stock Trading: From Concept to Practical Application

Legal Framework and Basic Concepts

To protect investors and maintain stability in the market, the State Securities Commission (SSC) has established a price control system through two main mechanisms: ceiling price and floor price. These are not arbitrary numbers but thresholds calculated based on previous market data.

Ceiling price represents the maximum price at which investors are allowed to place buy orders during a trading session. On electronic price boards, it is usually displayed in purple. Similarly, floor price is the minimum price permitted for sell orders, typically shown in light blue. For example: KDH stock has a ceiling price of 41,000 VND and a floor price of 35,700 VND.

Why Does the Market Need Price Limits?

Benefits of Price Limits

The ceiling and floor price system plays an important role in market regulation. It prevents uncontrolled buyers from pushing prices to unreasonable levels within a single session and protects investors from abnormal “panic selling” episodes.

Ceiling prices help prevent price manipulation, a concern that developed markets always warn about. For stockholders, the floor price provides a psychological safeguard, reducing worries about extreme losses during volatile sessions.

Challenges and Limitations

However, no mechanism is perfect. When demand exceeds supply and prices hit the ceiling with large buy orders but few sellers, or vice versa when selling hits the floor with almost no demand, liquidity can become completely paralyzed at these levels.

This also means traders may miss opportunities or face “stuck orders.” Additionally, when many stocks are simultaneously “staying on the floor,” it can trigger widespread panic selling across the entire market, especially for large-cap stocks that have significant influence.

How to Calculate Ceiling and Floor Prices

The calculation method is not complicated but varies depending on the product type and trading platform. While international markets like the US or international derivatives do not apply these limits, Vietnam enforces strict regulations.

Formula for VN30 Stocks and Futures Contracts

For stocks, EFF certificates, and VN30 futures contracts, the formula is straightforward:

Ceiling Price = Reference Price × (1 + Price Fluctuation Margin %)

Floor Price = Reference Price × (1 – Price Fluctuation Margin %)

The reference price is defined as the previous session’s closing price, applicable to HOSE and HNX. On UPCOM, it is calculated as the weighted average of transactions from the previous session.

The fluctuation margin varies by exchange:

• HOSE: 7%
• HNX: 10%
• UPCOM: 15%

Real-world example: On 08/10/2022, HPG stock had a reference price of 24,000 VND/share on HOSE with a 7% margin.

Applying the formula:

• Ceiling Price = 24,000 × (1 + 7%) = 25,680 VND
• Floor Price = 24,000 × (1 – 7%) = 22,320 VND

Special Formula for Warrants

Warrants have a more complex formula because it depends on the underlying stock price:

Ceiling Price = CW Reference Price + (Ceiling price of underlying stock – Underlying stock reference price) × (1/Conversion Rate)

Floor Price = CW Reference Price – (Underlying stock reference price – Underlying stock floor price) × (1/Conversion Rate)

If the floor price calculation results in a value less than or equal to 0, it is set at the minimum quote level of 10 VND.

Example: CFPT2205 warrant has a reference price of 1,240 VND/CW, with a conversion rate of 6:1. The FPT stock on that day had a ceiling of 92,234 VND, a floor of 80,166 VND, and a reference price of 86,200 VND.

• Ceiling Price = 1,240 + (92,234 – 86,200) × (1/6) = 2,245 VND
• Floor Price = 1,240 – (86,200 – 80,166) × (1/6) = 234 VND

Trading Strategies Based on Ceiling and Floor Prices

Understanding this mechanism allows traders to interpret “market sentiment” through these price levels.

When a stock continuously hits the ceiling with increasing buy orders, it signals strong demand dominance. If you hold the stock and are profitable, you might wait for the next session to exit with better gains or partially take profits if your target has been reached.

However, if the price hits the ceiling but selling pressure remains strong, indicating a conflict, it’s wise to consider taking profits if in profit or cutting losses.

For the floor price scenario, especially when liquidity is low and there are large sell orders, combined with bad news or market volatility, you should consider closing your position. Not every dip is a winning strategy.

A key point to remember: The Vietnamese stock market operates on a T+1.5 system, meaning you cannot trade again within the same session. Analyze market trends carefully before making decisions, and avoid FOMO-driven actions when seeing ceiling prices or rushing to buy at the floor.

Frequently Asked Questions

Are ceiling/floor prices different from the highest/lowest prices in the session?

Yes, there is a fundamental difference. Ceiling and floor prices are calculated thresholds based on reference prices. The highest and lowest prices during a session are determined by actual supply and demand. Therefore, the market may never reach these limits.

Does the Vietnamese derivatives market apply price limits?

Yes. The Vietnamese derivatives market has regulations on ceiling and floor prices. However, most international derivatives markets do not have such limits—price fluctuations are driven freely by supply and demand.

Are cryptocurrencies subject to price limits?

No. The cryptocurrency market operates entirely freely without any fluctuation limits within a session.

Which markets do not apply price limits?

International derivatives markets, CFD contracts, forex, commodities, and cryptocurrencies do not have regulations on ceiling or floor prices. Each country has its own rules according to its regulatory framework.

When trading, remember that ceiling and floor prices are tools for protection but also boundaries. A deep understanding of examples of ceiling and floor prices will help you optimize your trading strategies in the Vietnamese stock market.