|By Nathan Young|
June 23, 2017
Price floor movement is an event that may not affect too many of you but it is important to know. Not in a too distant past, a country removed their price floor so to speak on their currency, causing people to lose unimaginable amounts of money.
A price floor is exactly what you think it is, a product, equity, or anything will be worth at a minimum whatever the current price floor is. Here are a couple examples to help you understand how a price floor might work if it were to be in place and then moved.
First, imagine that gold is trading at $1000 and the floor is at $200, that means that gold should not go below $200 an ounce. However, if you were to remove the price floor, it would have little to no effect on the commodity because price is already trading higher than the floor.
Now, if price were trading around there and the floor were to be moved or removed, the market decide price is supposed to be lower but couldn’t due to the price floor, cause a large bearish push in the commodity. Instead of gold, you can think of it in terms of wages with minimum wage being the floor for unskilled workers in the United States. With the push to have minimum wage increased, that would be the same as moving the price floor higher.
Looking at equities, we can theoretically pin a price to a stock, but most of the time is it trading at a discount or premium, which is why there is a stock market constantly moving to find that price everyone can agree upon. If you still have questions, search the Internet and join an investing community and open up a discussion on price floor movement as this can help grow you knowledge on the topic. Typically you won’t find this in the stock market, but it is important to know if there is a floor just incase it may impact the product or equity you are invested in.