New thoughts on IPO Prices



  • Recently been thinking a lot about IPO's and the sudden increase in prices and the blame being based on Bots.

    However it may be that FI just increase the price dramatically once they note the amount of interest.

    My reasoning for this is:

    If player IPO's at 60p and minutes later he is £1.50 I believe very few futures have actually been sold as if they had the instant sell price once available would need to be back down at near 60p or FI would be losing thousands within days of each IPO.

    Therefore the only benefit of bots is maybe to get a the first few hundred of futures prior to FI increasing the price. The cost of having this technology would not be worth it for the few shares you could get prior to the price jumping. So it could just be that FI see how much demand there is and increase the price.

    I believe Adam Cole has said they are now looking at the IPO process and hopefully a more transparent process can be created.



  • As far as I'm aware, price only increases when futures are actually bought and only decrease when sold (or listed for sale).

    I don't think that FI artificially inflate or deflate prices. How would they determine the amount of interest, when the only true barometer is purchases vs sales?

    Plus surely a bot could buy 500, 1,000 or more shares at very low prices, thereby magnifying any profit when human traders follow seconds later.

    Instant sell is usually suspended on IPOs for a while, to try to prevent massive price falls following the initial boom. But even if it wasn't, FI would not lose any money, because the circa 5% spread + 2% commission on each instant sell guarantees them some return.



  • I am looking at this from a pure business case be it FI or a shop selling tins of beans - it just does not make any sense at all to sell thousands of your product at a very low price and offer to buy them back a few days later for considerably more!

    Whilst once a player is established we all tend to go buy 1p up or down for every 100 futures bought or sold there is no actual set figure and I would imagine the technology behind FI is up to the task of identifying interest - just think how many of us are searching for players between the 2 hour time slots.

    They would not be artificially increasing the price as the IPO price is just a guide price and will change dependent upon supply/demand. A bot can only buy futures at cheap prices if they are available and my guess is there are very little futures available at the IPO price.

    As for 5% spread and 2% commission this is small change compared to the possible loss.

    As per example if player is IPO at 60 and rose to say £2.00 and we went with the rationale of 1p per 100 that would be 14,000 units sold at an average price of £1.30 if then a few days later instant sell was 5% lower £1.90 and everybody sold FI would be massive losers even with there 2%!



  • @Fletch said in New thoughts on IPO Prices:

    As per example if player is IPO at 60 and rose to say £2.00 and we went with the rationale of 1p per 100 that would be 14,000 units sold at an average price of £1.30 if then a few days later instant sell was 5% lower £1.90 and everybody sold FI would be massive losers even with there 2%!

    I hear what you're saying, but FI are selling us a product that does not actually exist, and that will be bought and sold hundreds of thousands of times during the lifetime of the platform. Every time, they are taking their 2% for every future sold. They can afford to take that financial hit early door, as they know over the next 5-10 years, that the future will inevitably make them money.

    In a business sense, they are pretty much turning water into wine or selling ice to the Eskimos ...

    I gave up on the IPO process months ago. It's highly flawed and needs reworked.



  • I'm not convinced FI are artificially inflating prices or similar, but I do think they need to act on the current IPO process which they have clearly left open to exploitation for some time now and failed to provide a level playing field for all users.

    I guess from their perspective, at the end of the day, it doesn't matter if a human or a bot buys the futures, providing the money is coming in, but to the honest trader, it does.

    It would be a huge risk to their company to engineer situations as you describe and would take a lot of analysis and planning. . Personally, for me, they are just prioritising growth by any meabs possible, ignoring the concerns of the average user.



  • @Fletch

    Your logic doesn't follow; why would FI set a low IPO price only to artificially inflate it at the last minute? They set the price anyway so could just set it at (or even just below) the realistic price that you have in mind. FI make their money from buying & selling churn (by taking 2% commission & any spread) so the more turnover that they can generate the more money they make; a low price encourages turnover so directly benefits them.

    Futures have no "cost" to FI unlike your beans/shop example so they can create any amount with the buying & selling price being irrelevant, as in your example the 14000 futures were bought & paid for by the bot owner, so any sale is simply switching those existing funds between different user accounts.

    It is almost certain that bots are taking lots of futures, especially in popular players, as it is a virtually risk free profit (at the expense of manual bidders). Their behaviour is identical to that which used to happen on Funding Circle until they accepted that allowing a small, IT savvy group of users to abuse & exploit the vast majority of investors was unacceptable & changed their selling model. The sooner FI come to the same conclusion & change their IPO structure the better.



  • I understand all your points and believe they are relevant when you are dealing with the say the top 500 players already on the system and I am not saying the prices are artificially inflated I am saying that once supply and demand is known the price can be more accurately set - an IPO price is just a guide or starting point.

    There is actually outside of a few hundred players very little liquidity in the markets and in many cases the only buyer of the majority of players is FI so the vast majority of players will never be bought and sold in vast quantities hence why FI cannot be in a position that if all futures in them were instant sold at prices well above what they issued them at.

    The whole point of the post was not aimed at saying FI were doing something wrong it is that I do not believe bots are actually getting that many futures as the price rises to a accurate price within maybe a few hundred futures being sold not 1000's



  • @Fletch said in New thoughts on IPO Prices:

    As per example if player is IPO at 60 and rose to say £2.00 and we went with the rationale of 1p per 100 that would be 14,000 units sold at an average price of £1.30 if then a few days later instant sell was 5% lower £1.90 and everybody sold FI would be massive losers even with there 2%!

    You're not comparing like-for-like.

    If the average purchase price is £1.30, then it should be compared to the average instant sell price (i.e. £1.30 minus circa 5% spread).

    If the current purchase price is £2, then it should be compared to the current instant sell price (i.e. £2 minus circa 5% spread).

    It is impossible to instant sell 14,000 futures at the current instant sell price, because: (a) only 100 futures can be sold at a time; and, (b) every sale of 100 futures will reduce the current instant sell price by circa 1p.

    So in your example approximately half of the 14,000 futures will be sold for more than the average purchase price and approximately half for less. But the circa 5% spread, plus 2% commission on each transaction guarantees that FI will always make money if people sell up their futures.

    In summary, FI can't lose money via IPOs.



  • I get that eventually if it is based upon 1p per 100 that eventually FI would make between 2% & 7% if all the futures were sold but as we do not know how the IPO system actually works and many out there believe bots are picking up 1000's of futures at the IPO or near IPO price I think it is much more realistic and profitable for FI to move the price once supply and demand is known.

    For instance when a company is floating there is a set number of shares at a set price then if demand is high the price jumps immediately trading begins not at set 1p intervals.

    Therefore I imagine FI have a set number of futures they are prepared to sell quickly before resetting the price once demand is known.

    That is just common sense and basic economics



  • @Fletch

    Why limit the number? They clearly work on the basis of set a low IPO price & raise the price by 1p/100 futures - why is that so difficult to understand? As long as you can't sell below IPO price then the amount of futures in circulation are all self funding, whether it's a few hundred in obscure players or tens of thousands in the case of popular ones.

    FI still have no financial liability as everyone has been paid for on issue & is either transferred between users or refunded (from those retained issue funds) on IS sales. FI don't care whether they are bought or sold by manual bidders or bots just keep the money circulating to generate fees.



  • I really think IPOs would be better if everyone could buy a maximum amount at the original release price (say a max. Of 50) the day before the release date. Then once they hit the market they can be subject to fluctuation depending on supply and demand. Then everyone can have the cancel to get involved if they want to.


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