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What is a Sunshine Trade?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 January 2020
  • Copyright Protected:
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    Conjecture Corporation
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A sunshine trade is a type of trading strategy that is intended to provide a great deal of transparency to investors who may be interested in getting involved with a given investment opportunity. Often, this type of trade is discussed widely before the order is even entered, with the issuer of the security providing a great deal of information regarding the nature and prospects of that security for generating returns. The idea behind this type of trading strategy is to avoid the generation of confusion or rumors regarding the investment by providing facts and detailed projections for consideration by potential investors.

In most cases, a sunshine trade involves an opportunity in which a high volume of trading is anticipated. The sheer volume involved is often the motivation behind the proactive approach of getting information in front of potential investors before there is the chance of widespread speculation on the part of analysts and investors alike. By defusing the rumors early on, the chances of a successful offering of the security are enhanced, as is the potential of attracting the right type of investor sooner rather than later. Issuers benefit from not having to spend time refuting unfounded speculation, while investors benefit from being exposed to more facts and less innuendo.

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While the basis of the sunshine trade is full disclosure before the entering of orders, there are often at least some regulatory limitations that must be observed. Sometimes known as sunshine laws, these regulations are designed to protect the interests of both the issuing corporation and investors who may be interested in purchasing the security in question. Those laws help to minimize the opportunity for the announcement of overly optimistic projections that have little relation to the specifics about the investment or the marketplace in which the security will be traded. From this perspective, the laws are seen as a means of balancing the data provided so that is actually of greater assistance to investors as they consider the pros and cons of purchasing shares.

Brokers often advise their clients of any sunshine trade that is pending, including how to locate all relevant information regarding the opportunity. Researching this type of trade is extremely important for both individual and institutional investors, since the volume of the trade is typically significant. This means a great deal of financial resources are required to participate in the investment, making it all the more important to ascertain if a particular sunshine trade is the most prudent use of the investor’s time and resources.

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