Key points:
- AIQ is up 68% this morning by one calculation method
- AIQ is also up on 20% by another calculation
- How can there be this discrepancy?
- AIQ Shares Down 20% – But Look At The Spread And Liquidity
AIQ (LON: AIQ) shares are up by 68% this morning in London. Or, by another equally valid calculation, AIQ shares are up by only 20%. Which is something of a difficulty in trading AIQ if we can’t even agree how much a price movement is. The difficulty is something that we’ve mentioned before, the spread on the stock.
The specific news at AIQ today is that it has won a contract to develop an NFT (“non-fungible tokens”) marketplace in Hong Kong. That could be terribly exciting of course until we take a closer look at the details of the contract. Which is that the contract is to enable arts schools and education centres in Hong Kong to produce and disseminate NFTs. This is not the creation of some vast new global marketplace that is.
On the other hand, we might consider that the AIQ market capitalisation is still shy of £5 million and that contracts are contracts. Further, software developed for one project has that great joy of being saleable elsewhere for the next as well. So, producing the structure within which art school NFTs can be disseminated offers the opportunity to sell the same system – and marketplace – to education systems elsewhere.
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We can take either view we desire on this. It’s a small contract, which is nice, or it’s the development of something that can be sold many times, which is better.
This still leaves us with the problem of how much the AIQ share price has risen off the back of this. The stock exchange reports that AIQ shares are up 20%. Also, they’ve risen from 7.5 pence to 12.60 pence. Which is 68%. So, we can, entirely validly, say that AIQ has risen either 20% or 68% given the same price movement. Which is weird, to say the least.
As to why this is so the answer is in something we’ve said before about AIQ shares. In fact, we’ve noted that trading AIQ is difficult more than once. The difficulty is that there’s little liquidity – not many people buying and or selling few shares. This means that the spread – the difference between the buy and sell prices – is large. As of this morning in fact it’s vast. The stock exchange is reporting the bid at 5 pence, offer at 13 pence. That is, it costs 13 to buy and it can be sold for 5.
Which is where the difference in the price movement comes from. Are we measuring the change in the mid-price? That would perhaps give us that 20% move. Or are we measuring the prices at which trades were last done with the market maker? That would give us the 68%.
The real answer to take away from this though is that even the 68% price move, that’s still smaller than the spread. Even if we had bought just before this move, sold just after it, we’d still not have made a profit. It’s therefore possible – possible – to think that AIQ is a share to tuck away for the long term. But trading in and out of it isn’t likely to be a profitable enterprise, not until many more people start doing so and that spread shrinks that is.