Dirty Float
Categories: Trading, Managed Funds, Incorporation, IPO
Government intervention at its finest. Dirty float (a.k.a. managed float) occurs when a country’s government takes action to change currency rates. For example, a country may buy and sell currency or hike interest rates. Why? To protect value. Like global perception of a coup in Country A (that's literally the name of an olde country—like when they only had a few vowels) makes Country A's currency flag relative to those of the U.S. dollar, the euro, the pound. Were the float "clean," nothing would happen.
Perceptions would be what they are, and as rumors of Country A's theoretical coup go away, then Country A's currency would grow in strength. But if Country A feels like it needs a strong currency (like, to um, buy stuff from other countries), then its central bank may intervene and buy up its own currency, strengthening it and making it more globally competitive.
That's the theory in a dirty float, anyway—and it has happened in the past. The most famous example happened when the gaggle of European countries were all taking their own individual country's currencies and trying to peg them to the uniform euro. Currency traders punished them so badly that many had to go into the marketplace and buy back their own currencies...just so that they could kiss the bottom of the relative values they promised when converting to the euro.
Dirty pool. Dirty float.
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Finance: What is Float?12 Views
Finance a la shmoop what is float? well this floats and this sinks to the bottom [Shark eats another fish]
and well just doesn't move well float in a financial sense is kind of the same
thing sorta..... whatever dot-com goes public and sells 30% of itself to the public it
had 50 million shares before the IPO and then it sold 15 million shares so that
now there are 65 million outstanding right it just ran the Xerox machine [Shares printing from xerox machine]
printed 15 million shares and sold them well at this moment the shares trading
or the float are just 15 million that's the float that 15 million numbers the
shares trading well then gradually after six months or so insiders begin selling
their shares so that you know they can buy Porsches and diamond-studded tennis [Diamond studded tennis racket appears]
rackets and pay divorce settlements and all that stuff so twelve million from
that 50 million pool now go from being sunk or not moving at all to floating or
being in the normal trading pool which will have grown from yes 15 million to
now 27 million that 27 million shares is the float so why does float matter well
it's a direct reflection of the liquidity of the company well let's say
that on average a given company trades two percent of its shares you know the
ones that are floating so here two percent of 27 million is just a little
over half a million shares a day or 540 thousand shares a day that's actually a
really small amount let's say the stock was trading for 20 bucks it's only 10 [Magnifying glass inspects cash]
million dollars a day in total trade volume for a company that has a much
larger market cap that's tiny teeny teeny tiny so for larger mutual funds
which are tens of billions of dollars in size a tiny float makes it really hard
for them to get into the stock and more importantly get out of the stock when [People frantically moving in a stock market house]
they want to so those big funds generally just avoid stocks with tiny
floats and the cost to the company is that well there's less demanders or
buyers for it so its stock tends to trade at lower multiples and it's also a
problem in that the shareholders of the very large mutual funds have the [Businessmen shaking hands]
ear of very large companies who often are you know acquisitive so that the
tiny companies with small floats aren't whispered about by the fund managers to
the companies who might be thinking about buying whatever.com or you know
whatever so yeah that's the float and if you're a big pond you, you know want to
avoid the small fish [Small fish float to the top of a pond]