Penny Stock Trading
I have a couple of questions about penny stock Trading for those well-experienced in this:?
1. Why is the spread (difference between the ask and the bid prices) so very different in “length” with some low-priced stocks and not others that appear pretty much the same otherwise?
2. Why would anyone want to buy a stock with an ask (selling) price 10 times higher than its average daily price?
3. Why would anyone want to buy a stock with a bid (buy-back) price 10 times lower than its average daily price?
4. I’d like to get in on the large increases Penny Stocks occasionally have but need suggestions on how this can be done (if it can). How do people make money on them with such spreads, and don’t the “money makers”/brokers handling the sales also arbitrarily set the ask and bid prices as they please?
Thank you.
I had a freudian slip. I said “money makers” but meant “market makers”. Seems they are the only money makers in these stocks.
Something that would answer almost every question is VOLUME. Look at a lot of penny stocks (defined as stock at less than $5 per share), especially those below a dollar, and you’ll notice that most have terrible volume. If a low volume stock is at 20 cents, and I buy 2000 shares (which I never would!) at the ask, say 30 cents, you’re going to see that stock show up in the big gainers as having a 50% gain in one day, because chances are that I was the only transaction that day. To make money it takes a moving market, and for that you need sufficient volume to move the market. For my example, say I want to sell to get some profit. If I put an order to sell at 30 cents, what good is that if no one is willing to buy. People forget that you need a seller to match a buy order, and a buyer to match a sell order. Now I’m stuck with this stock I don’t want, and other people might sell theirs at a price lower than 20 cents, so now every penny under 20 cents is a 5% loss on my part. This is why you should stay away from pennies.
I recently bought Clearly Canadian (CCBEF.OB), when it was at 95 cents, after dropping from $3 to 50cents, then climbing to 95cents, but the only reason I bought it was because I looked at the company’s new management, the steps they were taking for growth, their recent publicity with a TV show, and listening to earnings reports and shareholders meetings, and now they’re at $1.21 which is over a 20% increase. I like their products and they’re company, which is why I buy any stock, and I’ve been making great profits from this mentality. I recommend this to everyone I talk to. Good luck.
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