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.
Additional Information - How do you buy and sell stocks online? I just saw this site etrade.com. Once I make an account, what do you do? I know very little about the stock market. I want to start buying and selling stocks. so how much is it to buy a stock normally? and then you can sell it later if the......
- Help investing as a teen--which broker, how much money, etc.? Hi, I am 15 and considering investing some money in the stock market. I know its best to get started early. I have a few questions. First off, which online broker should I use? I want one with just the basics, no fancy tools, with cheap trade fees and no......
- Widgi Creek Golf Club, Bend, OR Widgi Creek Golf Club is located in: Bend, OR Phone: (541) 382-4449 Website: http://www.widgi.com/golf/hours.cfm Course History: This is a great place to stop if you will be in the Bend, OR area. We fell in love with this course and can't wait to go back. It is extremely beautiful and......
- Joke: Computer Diagnosis :)? One day Bill complained to his friend that his elbow really hurt. His friend suggested that he go to a computer at the drug store that can diagnose anything quicker and cheaper than a doctor. ''Simply put in a sample of your urine and the computer will diagnose your......
CONJ 11th March 2010
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.
joe_dawg_1000 11th March 2010
I’m not an expert in this area, but I would avoid penny stocks because they are usually a sign of a company that is struggling to survive. While some have huge returns, most of them just go downhill (more than they have already).
Louisa 11th March 2010
Basically, the spreads are wide because OTC stocks are so heavily manipulated. If you’re not one of the manipulators (the scam companies who offer the shares, the hedge funds, the market markers, the shorters)…I won’t say ‘never’ but i will say that you will have difficulty reaping the benefit of those spreads because you need to know when to get in and when to get out.
I’m not saying that money can’t be made in pennystock and i’m not saying there aren’t honest, good companies listed on the OTC, but you need to focus on finding truth, more than spreads. the market’s extremely volatile and you can get burned bad if you’re not careful.
Most online brokers will let you buy penny stock, but they usually charge a premium plus commission.
I don ‘t play around with that stuff anymore. I just trade regular NYSE stocks and do pretty well.
PS- I don’t agree that pennystock means a company is going under. Many start ups (who are honest) use the OTC to raise capital for their businesses. So it’s not all bad, it’s just a greater mix of good and bad than the regular markets.
tolstoi1 11th March 2010
Let’s say you have direct knowledge that a new company or invention has happy customers and expansion plans.
An example would be Xerox in the ’60s when it pioneered dry toner copiers. Others might be Krispy Kreme or Starbucks.
When you see the market response and the company sells stock or expands its marketing, THEN you can buy stocks, intending to hold them for many years and only using money that you can afford to lose.
Where do you find money that you can afford to lose?
You could a buy new car for $20,000, which is actually $30,000 when you include insurance and finance charges.
OR you could buy a $5000 used car and hold onto $15,000.
You can have a decent car in the shortrun and a positive financial future in the longer term.
Makes sense?
Joseph F 11th March 2010
Your "additional details" answered your own question…"penny stocks" are cheap because they aren’t worth anything! If they WERE, they would be trading for realistic prices!
Don’t waste your cash!