What is low volume stocks trading?
A low level of trading activity is sometimes associated with so-called penny stocks.
Penny stocks are a type of inexpensive security that trades outside of the major market exchanges, and because it has a low price per share, these stocks trade in low volumes.
A typical stock will have around one million shares traded each day because it’s simply too expensive to purchase an entire block of 100,000 shares or more.
With penny stocks, as few as 20,000 shares may exchange hands on any given day, making the cost to purchase those 100,000 shares extremely expensive since they would account for a considerable percentage of your portfolio.
In addition to being small companies with limited assets and operations, penny stocks lack liquidity from an investor perspective.
There’s no active secondary market to speak of where investors can sell their shares.
Liquidity, transparency and selling
Though penny stocks may trade on the pink sheets or OTCBB (over-the-counter bulletin board), these companies are not required to file anything like a prospectus or quarterly report, making it difficult for investors to find out what’s going on with the company’s business operations.
When there is little transparency, you can predict that large investors will stay away from penny stocks.
As a result, liquidity takes a back seat.
Finding someone who wants your shares at a particular price becomes nearly impossible – perhaps even more so if the company is having problems making its financial reports look good enough for auditors and regulators.
In cases like this, you might sell your shares, but they may sell for pennies on the dollar.
In other words, penny stocks are attractive to investors who don’t have much money since you can build a position with relatively small investments.
But if you want to get rid of those same shares, the chances are high that you’ll face difficulties finding willing buyers. If you find a buyer, it might take weeks or months before the transaction is completed.
The lack of liquidity and transparency comes at a price: a lack of investor interest in low-volume stocks trading.
Microcap investing
However, there’s another way to invest in penny stocks that reduces some of these risks while providing opportunities for significant gains: microcap investing. In this case, because an investment is smaller, the company has a smaller market cap.
In addition, microcap stocks are typically traded on lower-tier exchanges such as the OTCBB and pink sheets, which have less stringent listing requirements for companies to qualify for trading.
As a result, penny stock brokers can trade these shares more quickly than if a national exchange requires them to be registered with the SEC or other government agencies.
However, this open door comes at a price. .
If you want to make low volume stock trading a part of your investment strategy, it’s essential to find a reputable and trusted penny stock broker and understand the risks.
Limit number of issues
Another way you can reduce these risks is by limiting the number of issues you invest in at any given time – regardless of whether they’re traded on a national exchange or just over-the-counter.
By focusing only on one to three companies, you’ll be able to follow them more closely than if you had ten or twenty different investments.
In conclusion
Making low volume stocks trading work for you means making sure that your money isn’t spread out too thin, making it challenging to keep an eye on all of your investments.
If something happens with one company that causes its value to drop significantly, there’s no guarantee that the other issues you own will go up in value – and vice versa.
Another important consideration if you want to make low volume stocks trading part of your investment strategy is the company itself and who’s involved with its management team.
Ideally, it would be run by an experienced CEO with a history of making good decisions well respected in the industry.
In addition, many professional investors choose technology companies with products that are less likely to experience frequent failures or disappointments since this limits their exposure (and potential losses) when they invest.
A low level of trading activity is sometimes associated with so-called penny stocks. Penny stocks are a type of inexpensive security that trades outside of the major market exchanges, and because it has a low price per share, these stocks trade in low volumes. A typical stock will have around one million…
A low level of trading activity is sometimes associated with so-called penny stocks. Penny stocks are a type of inexpensive security that trades outside of the major market exchanges, and because it has a low price per share, these stocks trade in low volumes. A typical stock will have around one million…