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Question for you sharedealing types

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    Question for you sharedealing types

    How does market cap affect share price?

    Or more specifically how does a fat load of dirty wedge affect share price? Let's take an AIM share as an example. Let's say there are 10 million shares in existance. The sp is at 4p say. Some big fat hedge fund comes along and scores a very lot, and this causes the sp to move to 6p. They then sell. Do they make 2p profit for not doing very much? (Assuming the share profit outweighs the dealing charges)?

    Knock first as I might be balancing my chakras.

    #2
    It depends what they paid. I don't see what it has to do with the size of the company.
    While you're waiting, read the free novel we sent you. It's a Spanish story about a guy named 'Manual.'

    Comment


      #3
      Originally posted by doodab View Post
      It depends what they paid. I don't see what it has to do with the size of the company.
      Really? A hedge invests a million in Apple you expect the share price to move significantly?
      Knock first as I might be balancing my chakras.

      Comment


        #4
        Originally posted by doodab View Post
        It depends what they paid. I don't see what it has to do with the size of the company.
        Let me try.

        Slim Suity goes contracting and earns £9 per hour, with all his new money he goes off the rails and starts to eat all the pies. Now Fat Suity he still earns £9 per hour but now has to buy a new wardrobe and cannot get on his bike because the wheels have buckled.

        I hope I've answered your question.
        What happens in General, stays in General.
        You know what they say about assumptions!

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          #5
          Lets say the hedge fund buys 300,000 shares

          The first 100,000 he picks up for 4p, and then the market is begining to notice there is a demand so sellers stick the price up, he then picks up the next 100,000 for 5p,price goes up again and he then picks up last 100,000 for 6p.

          When he sells it goes in the opposite direction.

          Therefore profit=0.
          Last edited by BlasterBates; 9 April 2014, 08:10.
          I'm alright Jack

          Comment


            #6
            Originally posted by BlasterBates View Post
            Lets say the hedge fund buys 300,000 shares

            The first 100,000 he picks up for 4p, and then the market is begining to notice there is a demand so sellers stick the price up, he then picks up the next 100,000 for 5p,price goes up again and he then picks up last 100,000 for 6p.

            When he sells it goes in the opposite direction.

            Therefore profit=0.
            I think you're missing the point of my question.

            @4p HF buys 100,000. Costs 4K.
            @5p HF buys 100,000. Costs 5K.
            @6p HF buys 100,000. Costs 6K.

            Total spend 15K.

            HF now sells 300,000 at 6p. Total back = 18K.

            Now, if these jumps in sp were soley due to the buys from the HF, did they just make 3K out of thin air?
            Knock first as I might be balancing my chakras.

            Comment


              #7
              Originally posted by suityou01 View Post
              I think you're missing the point of my question.

              @4p HF buys 100,000. Costs 4K.
              @5p HF buys 100,000. Costs 5K.
              @6p HF buys 100,000. Costs 6K.

              Total spend 15K.

              HF now sells 300,000 at 6p. Total back = 18K.

              Now, if these jumps in sp were soley due to the buys from the HF, did they just make 3K out of thin air?
              They wouldn't be able to sell them all at 6p. Just as starting to buy would trigger a price increase, starting to sell would trigger a price decrease. Supply and demand.
              The material prosperity of a nation is not an abiding possession; the deeds of its people are.

              George Frederic Watts

              http://en.wikipedia.org/wiki/Postman's_Park

              Comment


                #8
                Only if they can sell 300k in one go. What usually happens is other people jump in when the price is rising pushing the price up further before the sell. They are the ones who get stung by the pump-and-dump.

                Comment


                  #9
                  Originally posted by MarillionFan View Post
                  Let me try.

                  Slim Suity goes contracting and earns £9 per hour, with all his new money he goes off the rails and starts to eat all the pies. Now Fat Suity he still earns £9 per hour but now has to buy a new wardrobe and cannot get on his bike because the wheels have buckled.

                  I hope I've answered your question.
                  This is a very useful analogy. It is also important to consider the impact on share prices at Gregg's and Fat and Fabulous menswear.
                  The material prosperity of a nation is not an abiding possession; the deeds of its people are.

                  George Frederic Watts

                  http://en.wikipedia.org/wiki/Postman's_Park

                  Comment


                    #10
                    And don't forget the bid-offer spread. You may be able to buy at 6p but the bid price will be lower and so you will only be able to sell them at a lower price than what you paid for them.

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