4 ms·

What's going on here?

by kgc 11y ago

adventured 11y ago
It can't go up any faster due to Chinese regulations
- amolgupta 11y ago
  i guess its called "circuit breaker" in stock market terms.
  - phdp 11y ago
    No, that is a mechanism to stop trading after a certain dip in the price.
    - piyushpr134 11y ago
      circuit breakers are there both on upside and downside. Circuit breaker is being triggered everyday at the start of the day
    - encoderer 11y ago
      US futures exchange has "lock limit" circuit breakers in both directions. It's not uncommon. Remember, a large share of market participants is playing from the short side. Up is down, down is up, it's all the same.
- IkmoIkmo 11y ago
  Do they limit demand or fix (cap) the price it can be sold for artificially? I imagine everyone would flock to buy the stock. Beyond that, why did the stock IPO at such a low rate? All that's mentioned is the price increase being limited, i.e. limiting volatility. Not a great idea but, I can see how that works. But why did the stock start out so low in the first place?
  - whyaduck 11y ago
    The daily increase is capped at 10%. All else being equal, in the real world, the only way to limit demand is to raise the price - eventually it will reach it's actual market value. Until then, "demand" doesn't really have much meaning - it's essentially being rationed. What I don't understand is who's selling?
    - IkmoIkmo 11y ago
      Who's selling? Well, imagine you wanted to sell your $300k ('market value') house on the market, as you needed liquidity. But the government says its price is capped at $25k. They enforce this by only letting notaries sign off on sales at that price. Ownership of a house by law is only valid once a notary (government worker) signs off on the exchange of the deed, so nobody will buy the house without the notary's signature, as then they'd pay but not officially receive ownership. The seller who has the money, can now call the police and kick the buyer out of the house, as the buyer can't prove he owns the house as he never received the deed from a notary. So to sell, you must use a notary service, and through the notary, $25k is exchanged hands. Now obviously nobody will sell $300k value at $25k, and obviously there are lots of home owners who at any point in time want liquidity and want to sell the house for whatever reason. The most sensible thing to me is 1) not many are selling, even if 1 out of a million shares exchanges hands, whatever was the last price is the new price. So the 10% gain can happen with insignificant volume. And 2) some people are selling for $25k, while receiving $275k under the table through a different deal. It'd be discounted as you'd likely need to launder the money which has costs, but if the market price and the artificial price are far enough apart, people will do it.
      - whyaduck 11y ago
        Given the daily 10% increase, anyone selling would have to be desperate for cash and, simultaneously, a horrifyingly bad risk. A loan at significantly lower than 10% daily interest could probably be secured using the securities as collateral, so I don't think that's the explanation.
      - logfromblammo 11y ago
ihsw 11y ago
Nepotism. IPO stocks are artificially rationed to maintain a daily 10% gain in order to control liquidity and reduce volatility -- and, more to the point, the IPO price is low for the benefit of investors. In practice, only those with the best connections are able to participate in the daily trade quota rationing.

What's going on here?

by kgc 11y ago

What's going on here?

adventured 11y ago

It can't go up any faster due to Chinese regulations

amolgupta 11y ago
i guess its called "circuit breaker" in stock market terms.
- phdp 11y ago
  No, that is a mechanism to stop trading after a certain dip in the price.
  - piyushpr134 11y ago
    circuit breakers are there both on upside and downside. Circuit breaker is being triggered everyday at the start of the day
  - encoderer 11y ago
    US futures exchange has "lock limit" circuit breakers in both directions. It's not uncommon. Remember, a large share of market participants is playing from the short side. Up is down, down is up, it's all the same.
IkmoIkmo 11y ago
Do they limit demand or fix (cap) the price it can be sold for artificially? I imagine everyone would flock to buy the stock. Beyond that, why did the stock IPO at such a low rate? All that's mentioned is the price increase being limited, i.e. limiting volatility. Not a great idea but, I can see how that works. But why did the stock start out so low in the first place?
- whyaduck 11y ago
  The daily increase is capped at 10%. All else being equal, in the real world, the only way to limit demand is to raise the price - eventually it will reach it's actual market value. Until then, "demand" doesn't really have much meaning - it's essentially being rationed. What I don't understand is who's selling?
  - IkmoIkmo 11y ago
    Who's selling? Well, imagine you wanted to sell your $300k ('market value') house on the market, as you needed liquidity. But the government says its price is capped at $25k. They enforce this by only letting notaries sign off on sales at that price. Ownership of a house by law is only valid once a notary (government worker) signs off on the exchange of the deed, so nobody will buy the house without the notary's signature, as then they'd pay but not officially receive ownership. The seller who has the money, can now call the police and kick the buyer out of the house, as the buyer can't prove he owns the house as he never received the deed from a notary. So to sell, you must use a notary service, and through the notary, $25k is exchanged hands. Now obviously nobody will sell $300k value at $25k, and obviously there are lots of home owners who at any point in time want liquidity and want to sell the house for whatever reason. The most sensible thing to me is 1) not many are selling, even if 1 out of a million shares exchanges hands, whatever was the last price is the new price. So the 10% gain can happen with insignificant volume. And 2) some people are selling for $25k, while receiving $275k under the table through a different deal. It'd be discounted as you'd likely need to launder the money which has costs, but if the market price and the artificial price are far enough apart, people will do it.
    - whyaduck 11y ago
      Given the daily 10% increase, anyone selling would have to be desperate for cash and, simultaneously, a horrifyingly bad risk. A loan at significantly lower than 10% daily interest could probably be secured using the securities as collateral, so I don't think that's the explanation.
    - logfromblammo 11y ago

ihsw 11y ago

Nepotism. IPO stocks are artificially rationed to maintain a daily 10% gain in order to control liquidity and reduce volatility -- and, more to the point, the IPO price is low for the benefit of investors. In practice, only those with the best connections are able to participate in the daily trade quota rationing.