Share Price Increase?

[Bartos 10]

Dear All,

 

 

I'm writin a thesis about mobile trading platforms and I'm looking for an answer to this specific question:

 

Does an increase in trader's number make general share prices higher?

Let's say we have 1000 traders providing their capital for companies through exchanges. Common sense suggests for me that if the 1000 rises to 1500 there is going to be more capital "searching for investment opps" thus prices go up, and the value of company's increase without any additional effort. Let me know please if this logic is valid and how can I see numbers for this effect in reality.

 

Another question that came into my mind:

Let's say we're talking about the Indonesian market. The same example, but there're a lot's of new companies before their first IPO/share issuance. Does the 500 surplus trader provide a plus demand for shares that companies are able to get more money for one share?

 

 

I appreciate if you share your thoughts with me!

Thanks a lot!

[jackb 10]

Dear All,

 

 

I'm writin a thesis about mobile trading platforms and I'm looking for an answer to this specific question:

 

Does an increase in trader's number make general share prices higher?

Let's say we have 1000 traders providing their capital for companies through exchanges. Common sense suggests for me that if the 1000 rises to 1500 there is going to be more capital "searching for investment opps" thus prices go up, and the value of company's increase without any additional effort. Let me know please if this logic is valid and how can I see numbers for this effect in reality.

 

Another question that came into my mind:

Let's say we're talking about the Indonesian market. The same example, but there're a lot's of new companies before their first IPO/share issuance. Does the 500 surplus trader provide a plus demand for shares that companies are able to get more money for one share?

 

 

I appreciate if you share your thoughts with me!

Thanks a lot!

 

Your question is bit unruly and disjointed and therefore hard to respond to. But, here goes:

 

1. An exchange is a secondary market. As such, trades executed on an exchange don't have any direct impact with respect to "providing...capital for companies."

2. Does an increase in traders number make general share prices higher? One major factor not included in your question is volume. If 1000 traders are each interested in only buying 1 share and the average daily volume is thousands or millions of shares, it certainly won't matter.

3. Your question also appears to have a built in bias...a buy-side bias. Don't forget, new traders can also be sell-side (short sellers).

4. In order for a trade to take place, it requires both a buyer and a seller. Let's assume your 500 new traders are all buy-side and they are looking for sizeable volume. This additional demand may be exactly what a large, motivated seller has been waiting for and he may gobble it up so fast and furious that the end result is price goes nowhere (and even possibly down).

5. What are the profiles of the new traders? Are these informed traders? If they're ill-informed, even with volume, their impact is likely to be muted.

 

Bottom line...it's impossible to know in advance the kind of impact any new set of traders might bring to a stock.

Edited September 21, 2011 by jackb
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