During trading hours on the stock exchange, have you ever seen stock price queues with bid queues or offer queues running out completely? If you've ever observed, that's what is called auto reject. If you don't understand what bid and offer are, please read: Bid-Offer in the Stock Market.
Auto reject is an automatic rejection by the Jakarta Automatic Trading System (JATS) of selling offers and buying requests entered into JATS as a result of exceeding the price limits set by the Stock Exchange.
Why is there an autoreject?
IDX determines auto reject with the intention that transactions that occur on the Stock Exchange actually take place according to a healthy, fair and orderly market mechanism. This means that the Stock Exchange does not want stock prices to fall too deep, causing traders to lose too much. And also the Stock Exchange does not want a price increase that is too high, so it is used by certain parties (bookies).
The following are auto reject rules from the Indonesia Stock Exchange (IDX)
Note: On the first day the issuer is listed on the Stock Exchange after going through the Initial Public Offering (IPO) process, the auto reject limit is set at twice the normal price.
To understand auto reject, you must understand the price fraction. If you don't understand price fractions, please read: Meaning and Illustration of Stock Price Fractions. If you already understand the limits of auto reject, let's look at the example of the auto reject illustration below.
Suppose the opening price of ABCD's shares is at Rp2,500. Because the share price is IDR 2,500, the autoreject limit is 25%. This means that the maximum ABCD stock price increase is 2500 + (2,500 X 25%) = 3,125. Meanwhile, if ABCD's stock price drops, then the deepest decline is 2,500 - (2,500 X 25%) = 1,875. This calculation is valid for one Exchange trading day.
So, for example, if you place a buy order and a sell order exceeds the auto reject limit, your order will be automatically rejected by the system. So, in one trading day, you can make a maximum profit at a price of IDR 3,125. If you experience a loss, the maximum loss you will incur is IDR 1,875.
Then, how do I find out which stocks are auto reject?
In the first paragraph of the first sentence of this post I wrote: "The stock price queue whose bid queue or offer queue is completely exhausted." So, those are the characteristics of stocks that are subject to auto reject.
In practice, sometimes you find stocks whose prices have increased drastically, resulting in a drastic increase, so that no more market participants make offers. This case is referred to as auto reject up / auto reject right.
On the other hand, if the stock price drops drastically so that no more market participants make a bid request. This case is referred to as auto reject down / auto reject left. Why did this happen? Because as I explained, auto reject occurs because there is a Stock Exchange RULE to regulate a fair transaction mechanism.
AUTO REJECT UP / AUTO REJECT RIGHT
When the price rises too high, it exceeds the maximum increase limit for the auto reject rule, meaning that stock buyers (demand) are willing to buy shares offered by stock sellers (offers), until the sellers who sell shares run out because there are too many buying requests (the goods are sold out). sold).
The seller who offers his goods at any price, from the cheapest to the most expensive, is sold out so that the selling offer is completely sold out. In other words, when referring to the economic law of supply and demand, when demand is great, prices will increase.
The economic law of supply and demand: demand > supply --> prices will go up, and vice versa. If you want to know how to auto reject in the stock market, the top auto reject view is as follows.
Example of auto reject above. See the sale offer (offer) runs out.
DOWN AUTO REJECT / LEFT AUTO REJECT
Why in the stock market, prices can fall so deep that no one makes a buy request? Because when the price drops too much to the maximum limit for auto reject, it means that there are lots of stock sellers who want to sell their shares, thus defeating the number of buying requests. Read the post: Bid-Offer in the Stock Market.
When the selling offer is very heavy, the buying demand will be exhausted because the interest in selling shares is very large. Because the selling interest is very large and when the stock price is at the auto reject limit, the stock price can be subject to a lower auto reject. Lower auto reject means that even the purchase request that asks for the lowest price will be sold by the stock seller.
Examples of auto reject cases below in the stock market. See the request (Bid) is completely exhausted.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
At the beginning of the article in this post, I said, the application of auto reject so that stock transactions can run REASONABLE. Reasonable in what way? The determination of auto reject from the IDX is implemented so that transactions in the capital market are carried out in an orderly manner. Just imagine, if the stock price in a day drops to 35% (the limit for auto reject price range is 50-200), the 35% decline is already huge. Imagine if there was no auto reject, and the stock price could drop to, say 65% .. Of course that much decrease is very unnatural and can be detrimental to traders.
Then, what if there are companies that get auto reject up or down auto reject in one trading day? What will the regulator (IDX) do?
If within one trading day of the Exchange, the company's shares are subject to auto rejection, it may still be okay. However, if the stock is auto-rejected for several days in a row and continuously, it is very likely that the company's stock may be subject to suspension. What is suspension? Please read the post: Meaning and Illustration of IDX Stock Suspension.
Then you are still not satisfied, and you ask again: Bung Heze, do you think the auto-rejected stocks are good to buy or not? Well, to answer your question, please read the post: Auto reject stock buying strategy.
