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I'm asking this because I still don't really know enough about market capitalization as a source of valuation. A company's market cap is determined by the last transacted price, so theoretically you don't really need a billion dollars of cash to make a billion dollar company.

That said, how would this mechanism work in a pump a dump? Do you need 100m of cash to increase a company's market cap by 100m? When you dump your shares, do you profit as much as the loss of other traders who bought in after your pump or could they lose even more than that, resulting in a dead-weight loss for the market? (Or if they lose less than that, a net gain for the market).

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    An efficient pump-and-dump is not about using your own money to drive up the price. It's about manipulating other people into using their own money for that. – Philipp Dec 25 '20 at 10:53
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The amount of cash required to move share price is not linearly related to the increase in market cap size. As an example, I owned a stock early this year. It has an 8 million share float. On 4/08 it traded 15,973 shares, closing at $24.70, up 61 cents. If you pretend that it was one buyer, it took $394k to raise the market cap by $4.88 million. In reality, it took far less than $394k since much of that volume probably traded before and after share price moved up.

As for pump and dump, low priced stocks with small floats are their targets. Because of the small float, it doesn't take huge amount of buying to push the stock's price higher. You don't need $100 million to do this and more than likely, far far less than $394k.

As for the exit profit made by the perps, that depends on large your position is and how much you can get out of before price drops a lot. Some of those duped into buying the stock may make some money if they're not greedy and sell before the collapse but by far and large, the majority of the victims lose money.

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so theoretically you don't really need a billion dollars of cash to make a billion dollar company.

No theory involved.

For example, Apple's current market capitalization is $2.24T. The company doesn't have assets (including cash) worth $2.24T; it "only" has $324 billion in assets.

Where does the other $1,916B come from? Investor hope and faith that -- over a suitably reasonable period -- Apple's assets plus net income will make owning Apple worthwhile.

That said, how would this mechanism work in a pump a dump? Do you need 100m of cash to increase a company's market cap by 100m?

Scammers rely on convincing suckers that low volume, and thus high volatility (typically penny) stocks will become Real Valuable Real Soon.

  1. The scammers buy lots of shares, which drive up the price somewhat.
  2. Pump the suckers into buying lots of shares because of "hope and faith", which drives the share value up.
  3. Dump the shares the scammers own.
  4. Soon enough the price crashes back when "hope and faith" turn into reality.

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