Replies to post #3679 on Renewable Energy and Power Inc (RBNW)

[Toxic Avenger]

Here's a good explanation of how it works.
https://en.wikipedia.org/wiki/Death_spiral_financing

The problem with this type of financing is it's usually based on the lowest trading price looking backwards x days.

So the lenders know exactly what price they can convert (buy) at and if they can sell well above that price, they make a nice profit.

For example, let's say the low price is at $1 and they convert at a 50% discount. Someone bids $1 and they fill the bid, making 50 cents profit on every share. But if that sell causes the next buyer to only bid 90 cents and that gets hit, the new convert price is 45 cents. But maybe after a few hits on the 90 cents, the bid drops to 70 cents and the toxic lender sells a few more shares. Now every share he converts for the next x days is at 35 cents. So his 50 cent/share profit on the $1 sell is now a 65 cent profit.

Eventually, he'll stop selling to try and let the price recover. Then you may think, "Great, dilution is done, the price is headed back" and be tempted to buy. And it may go up for a little while. But eventually, when enough people start to buy, the lender will start to dump again, and it will repeat.

If you look at RBNW, you'll see that the chart trend is down, with lower highs and lower lows. That's pretty much the mark of trouble.

Best of luck, but if you're trying to make money on a pinkie with toxic loans, it's virtually impossible, unless you're one of those lending them money.