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What are ARA and ARB Stocks? Investors Must Know This

Check out the discussion about the meaning and benefits of ARA and ARB shares as well as tips on transacting ARA and ARB shares

When looking for stocks Auto Reject Above (ARA), it's not complete if it's not accompanied by a glance at the stock concept Auto Reject Bottom (ARB). Vice versa. You may often see or read the news that ARB or ARA is closely related to company stock price. For example, "After Dozens of Volumes ARB has been hit, Company X's Shares Drop in the Market."

It is very important for investors to know what exactly ARA and ARB stocks are. By knowing this topic, investors can more easily provide their analysis of stocks. Investors are finally able to get a more optimum level of profit. What exactly are these ARA and ARB? How do these two things affect the company's stock price? Check out the discussion about the meaning and benefits of ARA and ARB shares as well as these tips for transacting ARA and ARB shares ya!

What are ARA and ARB Stocks?

Illustration of Understanding ARA and ARB Stocks | Pexels

Stocks are investment assets that tend to fluctuate in price. The movement of stock prices can increase up, move down, or not move from the initial price. Due to the fluctuating characteristics of stock prices, the mechanism auto reject or auto rejection present so that the stock price can remain under control (not fluctuate very high).

Mechanism definition auto reject shares is the minimum or maximum limit of the increase and decrease in share prices in one day of trading transactions on the stock exchange. The main purpose of this system is to keep investors protected from fluctuations in stock prices that are too large. The way ARA and ARB shares work is that when the stock price penetrates the upper and lower limits that have been set, the system will automatically reject the incoming buy or sell transactions.

The determination of the upper and lower limits of the share price is determined by the Indonesia Stock Exchange (IDX) as the organizer of securities buying and selling transactions in Indonesia. The provisions on the percentage limit for ARA and ARB shares according to the Decree of the IDX Board of Directors Number Kep-00023/BEI/03-2020 are as follows

Limit Rules ARA ARB | IDX Board of Directors Decision Number Kep-00023/BEI/03-2020 Table by DailySocial.id

The following is an explanation accompanied by an example of the meaning of ARA and ARB shares. 

What are ARA Stocks?

ARA stands for Upper Auto Rejection, where it is the maximum limit for the increase in the price of a share in one day trading shares on the stock exchange. Stocks that experience ARA have the characteristics of price increases that penetrate the limits set by the IDX. When a stock is hit by an ARA, there will be no more orders in the sell line for that stock in one trading day. 

An example of the case of ARA shares is company X's shares have a closing price per share of IDR 2.500 on Tuesday. The ARA percentage for shares priced at Rp2.500 is 25%. Therefore, the maximum share price on the following day, which is Wednesday, is Rp2.500 + (Rp2.500 x 25%) which is Rp3.125. When company X's shares break the price limit of Rp3.125 on Wednesday, company X's shares are subject to ARA.

What are ARBs?

Illustration of Understanding ARB Stocks | Pexels

ARB stands for Auto Reject Bawah, which is the maximum limit for the decline in stock prices in one trading day on the stock exchange. When a stock is exposed to ARB, then there is no longer a queue for the purchase order for the stock in one day of stock trading transactions.

An example of the case of ARB shares is company Y's stock has a closing price per share of IDR 3000 on Tuesday. The ARB percentage for shares priced at Rp2.500 is 7%. That way, the maximum share price on the following day, which is Wednesday, is IDR 3000 - (IDR 3000 x 7%) which is IDR 2.790. When company Y's shares break the price limit of Rp2.790 on Wednesday, company X's shares are subject to ARB and so there will be no longer queues for buy orders on Wednesday.

Determinants of ARA and ARB Saham Stock Limits

Determination of ARA and ARB is actually influenced by various factors, namely as follows.

  • The closing price of the company's shares on the previous day (for shares that have been traded on the IDX)
  • The second factor is the price of corporate actions (for example, there are companies that do stock splits)
  • The first day or initial stock (the first stock to be opened on the stock exchange)
  • Price based on value market of the shares determined by the business appraiser, this is regulated in the Financial Services Authority Regulation Number 35/POJK.04/2020 concerning the Assessment and Presentation of Business Appraisal Reports in the Capital Market.

Benefits of ARA and ARB Stocks

Illustration of Benefits of ARA and ARB shares | Pexels

Mechanism auto reject The stock purchase transaction actually has the main objective, namely to protect both investors and issuers – companies that issue securities – from extreme price fluctuations. The following are some explanations of the benefits that can be provided by the ARA and ARB stock mechanism

Benefits of ARA and ARB Shares for Investors

The following are the benefits of the ARA and ARB mechanisms for investors.

Adding to the Consideration of People who want to Buy Shares

When viewing information about which stocks are currently subject to ARA and ARB, investors can see which stocks are currently rising or falling in price. Investors will usually buy stocks when the stock price drops. Meanwhile, when stock prices rise, investors will sell shares. However, investors can also do more analysis of the company's stock.

What's more, when a stock has been exposed to ARBs and ARAs for days. When a stock is exposed to the ARA for several days, it is likely that the stock is experiencing an upward trend in market price and that is a good sign in investing in the company's stock. When a stock experiences ARB for days or even in the long term, it may be a bad sign for the company's stock, because the stock price continues to fall.

Protecting Investors in Buying Shares

The ARA and ARB mechanisms actually have a purpose to protect investors from extreme stock price fluctuations and fluctuations. In real life, there are many types of investors. There are those who almost every time can check the exchange trading.

There are also investors who do not have time to check their investment stocks. Investors who do not have time to observe transactions trading usually will buy the company's shares and then hold the shares for a while in his account. This ARA and ARB mechanism can protect investors who have bought shares so that their investment will not fall massively. It would be very sad not if investors who often do not open their stock accounts then see the numbers drop drastically. Mechanism auto reject would protect such a case. 

Benefits of ARA and ARB Shares for Companies

The following are the benefits of the ARA and ARB mechanisms for investors.

Keeping the Company's Stock Price Stable

The ARA and ARB systems will be able to help protect the company so that the company's stock price remains stable in fluctuations. According to Brigham, EF, & Houston, JF (2021), the main goal of the company is to maximize shareholder value. This happens because shareholders are parties who fulfill returnits last (dividends) (profits for investors in bonds and other assets usually come first).

That way, when the shareholders of the company prosper, it is certain that the company is in good financial condition. The ARA and ARB mechanisms will help stabilize stock prices so that this mechanism helps companies maximize shareholder wealth.

Minimizing the Loss of Companies whose Share Prices Drop

When a company's stock price drops, many investors may doubt how society is performing. Especially if the investor has given a lot of funds to buy shares, but the price drops and he suffers a loss. What is even more dangerous is that investors do not want to invest in the company again. Well, the ARA and ARB stock mechanism can protect the company from these possible losses. 

ARA and ARB Stock Transaction Tips

Illustration of ARA and ARB Stock Transaction Tips | Pexels

The true investor is someone who risk averse, investors will be reluctant by the presence of risk. There are some tips you can do to avoid the risk of loss in stock transactions affected by both AB and ARA. Listen stock investment tips The following ARA and ARB yes!

Observe the stock prices of ARA and ARB

In transacting on shares affected by ARA and ARB, investors are advised to keep checking the fluctuations in the company's stock price. This is done to avoid a higher risk in the future. ARB stocks may look promising because of their low prices.

However, when stocks are exposed to ARB almost every day, it seems that investors need to be careful with the possibility of another price decline in the future. Even so, there are still other factors that investors can use in conducting stock value analysis. So, investors can check market prices while checking other indicators to find out how profitable it is to invest in ARA and ARB-affected stocks.

Get to know the fair price of shares

To find out how profitable a stock is, investors can compare the current market price of the company with the fair price of the stock or the initial price of the company conducting an IPO (Initial Public Offering). If the current stock market price drops far from the initial stock price, investors need to be careful in disbursing funds to the company.

See the Prospect of the Stock in the Future

You may sometimes be interested in investing in a stock because you look at the industry of a company. You are interested in investing in company shares in the technology sector because you see the prospects of the technology industry currently being increasingly advanced. This is reasonable to do. The prospect of a stock is one that you should also consider in investing in stocks that are affected by the ARA and ARB.

Amati Market Cap Company

Marketcap or the company's market capitalization is one of the fundamental indicators that investors usually see when investing in a company's stock. The bigger market cap from the company indicates the stronger the value of the company. This happened because market cap is the amount of funds to buy all shares in the company.

Financial Statement Analysis 

Examination of financial statements is one of the things that investors can do to investigate further about the company's past performance and business profit prospects in the future. Investors can also see earnings, cash flow, and the percentage of dividends owned by the company which may also show the prospects for future profits and dividends of the company.

The ARA and ARB mechanisms in stocks are very useful, both for investors and for issuers. Investors themselves will have many advantages when learning the terms ARA and ARB. Are there currently any ARA or ARB stocks that you are currently looking at?

Reference:

Brigham, EF, & Houston, JF (2021). Fundamentals of financial managementCengage Learning.

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