Table of Contents

Floor: What It Is and What It Means for Traders

By

澳洲幸运5官方开奖结果体彩网:Cory Mitchell

Updated December 27, 2023

Reviewed by

Gordon Scott

Fact checked by Kirsten Rohrs Schmitt

What Is a Floor?

A floor enacts a limit for a particular activity or transaction to which it must adhere. The floor functions as a lower limit, while a ceiling signifies the upper limit. The de꧒signated activity may be assigned anywhere from the lower to the upper limit but is not considered acceptable if it falls below the floor level or goes above the ceiling level.

Key Takeaways

A floor enacts a limit for a particular activity or transaction to which it must adhere.
A floor can include the lowest acceptable limit, the lowest guaranteed limit, or a physical space where trading occurs.
Trading floors on exchanges or banks have largely been replaced by trading desks, electronic markets, and screens-based trading.

Types of Floors

Floors can be established for prices, wages, 澳洲幸运5官方开奖结果体彩网:interest rates, 澳洲幸运5官方开奖结果体彩网:underwriting standards, and bonds. Some types of floors, such as underwriting floors, act as mere guidelines, but others, such as price and wage floors, are 澳洲幸运5官方开奖结果体彩网:regulatory constraints that restrict the behavior of free markets.

澳洲幸运5官方开奖结果体彩网:Interest rate floors are an agreed-upon rate in the lower range of rates associated with a floating rate l🦩oan product. Interest rate floors are utilized in derivative contracts and loan agreements. Lenders use an underwriting floor to establish minimum guidelines for borrower creditworthiness and determine the loan for which the borrower is qualified.

A price floor is the lowest amount at which a good or service may be sold and still function within the traditional 澳洲幸运5官方开奖结果体彩网:supply and demand model. Price floors may be set through regulation. The government may establish a price floor for carbon emissions, alcoholic beverages, or tobacco to lower consumption to promote public health.

Important

An interest rate floor is often present through the issuing of an 澳洲幸运5官方开奖结果体彩网:adjustable-rate mortgage (ARM), as it prevents interest rates from adjusting below a preset level.

Trading Floors

Physical exchanges house trading floors, where floor traders and brokers engage in market transactions. Floors featured 澳洲幸运5官方开奖结果体彩网:open-outcry trading located in trading pits. Most physical floors have been replaced by computerized ಌtrading.

Businesses also have trading floors, and these are spaces where the trading for a business is conducted. At 澳洲幸运5官方开奖结果体彩网:proprietary trading firms, multiple traders will often be iꦬn one room making trades. Currency exchange companies may also have a trading floor, along with banks or companies involved in the buying and selling of commodities.

NYSE Trade Floor.
Skeeze/Pixabay.com (CC0-PD)

What Is a Wage Floor?

The U.S. 澳洲幸运5官方开奖结果体彩网:minimum wage is an example of a wage floor and functions as a minimum price per hour that must be paid, as determined ꩵby federal and staꦫte governments.

How Are Farmers Protected by Price Floors?

In the U.S., farmers are protected by Price Loss Coverage (PLC) for twenty different crops. This program pays subsidies to farmers based on the market price of a crop, compared to the crop’s reference price set by Congress. The larger the fall in a crop’s price, the larger the government pays farmers.

What Is a Commodity Trading Floor?

Items such as diamonds can be traded on a trading floor. The Dubai Diamond Exchange (DDE) auction facility at the Almas Tower in Jumeirah Lakes Towers, Dubai, UAE is the world’s largest diamond trading floor.

The Bottom Line

A floor is a limit for a particular activity or transaction. The floor represents a lower limit, while a ceiling signifie🙈s the upper limit. Floors can be established for prices, wages, interest rates, underwriting standards, and bonds. Physical trading floors provide ཧarenas where stocks or commodities are traded.

Article Sources

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