Let's continue along point 3. Low number of publicly issued shares. Stick with RHE shares. The number of publicly issued shares is 1.78 million. Ideally, this is the number of shares that could be freely traded on a daily basis. Equity investors and investment funds are not always intraday traders. Therefore they buy shares and hold them. This means that the number of shares that can be freely traded daily is reduced. In the case of the RHE , there are about 1.2 million shares held by shareholders and funds. This means that nearly 500-600 thousand shares are tradable without leverage in free daily trading.
Let's continue the argument.
At the start of each day's trading, contract brokers (brokerage firms) are responsible for providing liquidity for the shares they underwrite. But how, when only 500,000 shares are available in free float ?
THE FACT IS HERE. Only a fraction of RHE shares are being acquired (or not even that). Instead, they collect "bond paper" from RHE bond paper provided by other brokers. Now this sounds a bit odd and scary, but it has potential. For hard-to-get ( RHE ) shares, the market makers are not selling shares but "bond papers". In short, buy and sell obligations.
BUT WHO BENEFITS ? Primarily for traders opening LONG positions. Because they do not borrow money at the opening to sell the shares they hold at the entry price to buy them back at a lower price. Traders who open SHORT positions do not short shares at the outset, but "promises" by other price-traders.
MEM PARTICIPATION. Let's go back to the starting point. I have explained that traders opening short positions do not open positions in stocks, but in "bonds". The situation is complicated by the fact that the price maker opposite the trader did not make the bond himself, but probably also obtained it in the form of a bond from another broker.
THEREFORE, WE CAN SEE THAT THE DAILY TURNOVER OF A COMPANY WITH 1.78 MILLION SHARES ( RHE ) CAN JUMP UP TO 40 MILLION.
Short or Long ? As described above, short sellers take considerable risk from the outset. This is because the bond mountains can quickly collapse in the event of a sudden rapid rise, causing huge losses for short sellers. Under SEC regulations introduced in 2010, a 10% stock price move above the SSR (Short Sell Restriction) on the short side kicks in.
THE IMPACT OF SHORT SELL RESTRICTION ON SHORT-SHARES. Short sellers are among the first to see the damage of this regulation. Market makers are quick to liquidate short positions often not at STOP LOSS levels but much earlier, making the cost of entry for new short entrants much higher, often to the point where a short position that wins later can only bring a fraction of the initial risk.
WHO ARE THE WINNERS ? The initial risk of taking LONG positions is much lower in these cases. After all, their initial entry is not subject to borrowing. Of course, bad entry timing can weigh on traders who take long positions, but the resulting loss is a fraction of that of traders who hold short positions with credit already initially.
MEM shares are one of the riskier parts of the stock market. But they are not to be feared, as they can yield higher, often unrealistically high, profits than anything else. But with this comes a much greater risk. Few companies with publicly issued shares can most easily bale into mem shares, so shorting them can be very risky and dangerous.
Finally, a brief analysis of the RHE . It can be seen that a near 4x accumulation range has built up and a further impulse rise is expected. Technically a target price of between 78-90 usd. I note that the target price I have indicated is exactly the same as the RHE target price (78usd) last issued by MARKETWATCH
Thank you for reading :)