Cutoff Point

Posted in Marketing and Strategy Terms, Total Reads: 365
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Definition: Cutoff Point

Cutoff point can be defined as a point where an investor decides whether or not to purchase a security. The cutoff point is considered to be very subjective and mainly depends on the personal and individual characteristics of the investor.


An investor considers several factors while deciding cutoff point. The factors like rate of return may be of varying importance for different investors as the risk aversion level of different investors is different. Suppose if two investors have different rate of return then for a particular security, one investor will have to pay more than other because of his difference in rate of return thus it conveys that the investor paying more has higher cutoff point. Many investors considers cutoff point as a rule of thumb when they consider particular security and it also help them in making more informed and consistent investment decisions.


There also exists the concept of daily cutoff point which says that in the foreign exchange or forex market, a particular point of time is specified by a foreign exchange currency or forex dealer which is considered as the end of currently going trading day and is also considered as the beginning of a new trading day. It is done forex dealers basically for logistical and administrative reasons. Although the foreign exchange market runs and trades for twenty four hours a day, but still the other players in the market as well as intermediaries require a specified beginning and end for each trading day because they need to define settlement periods and record trade dates. Let’s day a foreign exchange dealer specifies the daily cutoff as 7pm every day and a trader places two orders on March 3, one at 6pm and other at 8pm. The trade at 6pm will be considered of March 3 and the trade at 8pm will be considered of March 4.

 

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