I just learned an interesting thing about the mechanism of stock trading in Vietnam that I want to share with you. It’s about the ceiling price and floor price — two basic concepts but very important when you want to trade more effectively.

The ceiling price and floor price are essentially the maximum and minimum prices that investors can place buy or sell orders within a trading session. They are calculated based on the reference price (the closing price of the previous session) and can vary depending on the trading floor. For example, on the electronic price board, the ceiling price is usually displayed in purple, while the floor price is in light blue. If you look at the code KDH, for instance, the ceiling price is 41,000 VND and the floor price is 35,700 VND.

Why are these limits necessary? The main reason is to control the market price. The ceiling price helps prevent situations where buyers push the price too high during a session, while the floor price prevents sellers from dumping too much stock. This is especially useful when the market is highly volatile — the floor price can help investors minimize sudden losses. Additionally, it prevents price manipulation and widespread panic selling.

However, it’s not always beneficial. When the market is very active, these limits can reduce liquidity. If there are too many buy orders at the ceiling or sell orders at the floor without matching counterparts, the market can nearly come to a standstill. You might also miss the opportunity to buy your favorite stocks or get stuck holding stocks you can’t sell.

Now, let’s talk about the calculation. The way to calculate the ceiling and floor prices varies depending on the product type. For stocks, VN30 futures contracts, and certificates, the formulas are very simple:

Ceiling price = Reference price × (1 + fluctuation margin %)
Floor price = Reference price × (1 - fluctuation margin %)

The fluctuation margin depends on the exchange: HOSE is 7%, HNX is 10%, UPCOM is 15%.

For example, take the floor price of HPG stock. The reference price is 24,000 VND/share on August 10, 2022, traded on HOSE with a 7% margin. So, the ceiling price will be 24,000 × (1 + 7%) = 25,680 VND, and the floor price will be 24,000 × (1 - 7%) = 22,320 VND.

For warrants, the formula is a bit more complex because it’s based on the underlying stock. The warrant’s ceiling price equals the warrant’s reference price plus (the underlying stock’s ceiling price minus its reference price) divided by the conversion ratio. Similarly, the floor price subtracts that value. If the result is negative, the floor price is set at the minimum quote of 10 VND.

For example, with the warrant CFPT2205, which has a reference price of 1,240 VND/CW and a conversion ratio of 6:1, and the underlying FPT stock’s ceiling price is 92,234 VND, the warrant’s ceiling price is 1,240 + (92,234 - 86,200) / 6 = 2,245 VND. The floor price is 1,240 - (86,200 - 80,166) / 6 = 234 VND.

So, how can you use this knowledge when trading? When a stock hits the ceiling price with a large buy order volume at the end of the session, it indicates strong demand. If you hold this stock and are in profit, you might wait until the next session to take better profits or partially sell. However, if there’s also strong selling pressure pulling the price down, you should consider taking profits if your target has been reached.

In cases where the price hits the floor with low liquidity and large sell orders, especially if there’s bad news or the market is highly volatile, you should think carefully before selling. Remember that the Vietnamese stock market operates on T+1.5, so you cannot buy or sell immediately within the session. Analyze the trend carefully before making decisions, avoiding FOMO when the price hits the ceiling or buying the dip at the floor.

Some frequently asked questions: How are the ceiling and floor prices different from the highest and lowest prices during the session? Simply put, the ceiling/floor prices are calculated beforehand based on the reference price, while the highest and lowest prices during the session are determined by actual supply and demand. The highest/lowest prices may never reach the ceiling/floor.

Vietnam’s derivatives market has regulations on ceiling and floor prices, but most international derivatives markets do not. Cryptocurrencies also have no such limits — their fluctuation margins are entirely driven by supply and demand. Generally, the ceiling and floor price regulations depend on each country and their regulatory authorities. Markets like CFDs, forex, and international commodities do not have these limits.

Understanding this mechanism will help you trade smarter and avoid common mistakes. Mastering examples of floor and ceiling prices is the first step to becoming a disciplined stock trader.