- What is the base volume and what is its use?
- What effect does the base volume have on the final price?
- How is the base volume calculated?
- What effect does the base volume have on stock market transactions?
What is the base volume?
The basic volume of a share is the minimum number of shares of a company that must be bought and sold during a trading day so that the price of that share can increase or decrease based on the ceiling of the fluctuation range.
The base volume is one of the rules that is imposed as a control factor against extreme fluctuations in stock prices. With the realization of the base volume on a trading day, the closing price of that share becomes equal to the weighted average price on that day.
The purpose of determining the base volume is for people to be confident about investing in the stock market and to know that stock price fluctuations are the result of buying and selling a significant number of shares.
Because otherwise, trading even a few shares of a company can affect the price of that company’s shares and lead to unrealistic and false prices. To learn more about this topic, we suggest you read the fundamental analysis training article.
The effect of volume on the final price
The closing price is the price at which buying and selling will be started on the next trading day according to that price and will be the basis of the new trading day. The final price is calculated by the weighted average formula, and to influence the volume based on this price and calculate the opening price
Calculation of the base volume of listed and over-the-counter companies
The base volume of stock exchange companies
According to the resolution of the Securities and Exchange Organization, which came into effect in March 2018, the base volume of all companies admitted to the Tehran Stock Exchange is a percentage of the company’s shares.
The minimum base value for all companies is equal to 50 billion Rials, and the maximum base value for companies with a capital of 20 thousand billion Rials and above is 120 billion Rials, and for companies with a capital of less than 20 thousand billion Rials, 100 billion Rials has been determined. The basis of the final share price is calculated on the last trading day of each week and is applied from the first trading day of the following week.
The base volume of OTC companies
Before March 12, 2018, the base volume of all over-the-counter companies was considered to be equal to 1, while after this date, the base volume rule was applied including companies present in the first and second markets and the OTC base, and their base volume was also the same as the base volume of companies The stock exchange is calculated.
With the difference that in the case of OTC companies in the base market, the minimum base value in the yellow, orange and red boards of this market is considered equal to 20, 10 and 5 billion Rials, respectively, and in the case of other OTC companies, the details of this law are similar. It is the stock market.
The base volume law has been changed many times since its formation in 2002.
However, the percentage mentioned in the above formula underwent changes over the years and at one point of time it was expressed as 15%, at another point as 20% and at some point as 10%.
What is meant by the volume of base one?
In the past years and before the approval of the latest law regarding the base volume and its implementation, companies licensed to operate in the OTC market did not have a base volume. With this situation, the number 1 was considered as the base volume of those companies. Therefore, in order for the price to fluctuate, you had to buy and sell at whatever price you encountered.
It should be noted that before 2018, there was no legal framework for OTC member companies in the field of volume, and prices were only determined based on supply and demand and weighted average. However, in 2018, a new law regarding the base volume of over-the-counter companies was approved in order to prevent the excessive influence of small transactions on prices.
Of course, even today, the base volume is considered to be 1 under the following conditions:
- The emergence of an economic node
- Bulk or blocked sales
- Leaking private company news
- Trading range of volatility for corporate stocks
- Symbol stops for various reasons
Viewing the base volume of companies in Rahvard
To see the base volume of companies licensed to operate in the stock market and over the counter, it is enough to visit the Rahvard website. Then, in the box at the top of the page, type the name of the symbol you want and search. In this case, you will enter the corresponding symbol page.
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Positive and negative effects of volume based on stock market transactions
The volume of the base prevents a steep price slope (up or down) in stocks. The stock must go up or down over time. Therefore, we rarely see false prices in the Iranian stock market. So the main advantage of base volume is market control and reduction of speculation.
Investors in financial markets have always welcomed pricing based on supply and demand. In most global markets, the question of the intrinsic value of goods, services, shares or anything else does not come up at all, but the amount of demand determines the value. In this way of thinking, fundamental issues are not discussed at all. But the existence of laws such as the range of fluctuation and the volume of the base cause restrictions in the market and investors are not satisfied with this type of thinking.
To examine the second problem of base volume in the stock market, consider the situation where a buy or sell queue is formed in a share. In this situation, a large amount of capital is blocked and the trend (upward or downward) slows down. The volume of transactions has decreased and there is no fluctuation in the share at all. In fact, the volume of the base and the range of the fluctuation allowed to maneuver in a certain range and the share reached the ceiling or the bottom of this range and can no longer move.
Of course, there are measures for this situation. For example, if the stock exchange organization considers this situation to be true, it will open the share for a limited period of time (for example, one day) without considering the base volume and fluctuation range. Therefore, transactions will flow again and the share will be priced based on supply and demand. To learn more deeply about this topic, we suggest you read the fundamental analysis training article.
The base volume of a share is equal to the minimum number of shares of a company that must be bought and sold during a trading day so that the price of that share can change based on the ceiling of the fluctuation range. The purpose of determining the base volume is that investors have confidence. Stock price fluctuations are the result of buying and selling a significant number of shares.
Because otherwise, trading even a few shares of a company can affect the price of that company’s shares and lead to unrealistic and false prices.