Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Price Band

What it is:

A price band is a price floor and a cap between which a seller will let buyers place bids on a security, usually during an initial public offering (IPO)

How it works (Example):

For example, let's say Company XYZ is going to go public. As part of the IPO process, Bank ABC (Company XYZ's investment bank) sets a price band on its shares of $45 to $50 per share. This means that buyers must bid at least $45 a share for the first issue of the shares.

Why it Matters:

Some markets also use price bands as "circuit breakers" to prevent extreme fluctuations in market prices. In these situations, if a security's price rises by, say, 10% of its opening price or within a certain time limit, the exchange suspends trading on that security for several minutes in order to calm the markets and allow sellers and buyers to find each other in a more orderly way.

Price bands are used to provide guidance to buyers. They are also frequently used in importing and exporting, whereby countries set top and bottom prices for certain goods sold within its borders. Countries then subject goods whose prices fall below a certain price to taxes or duties to force the price back into the band.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...