Tuesday, January 19, 2010

Trading micro cap stocks

I have my eyes on a micro cap stock for a few days now. This stock has a market capitalization of about $50 million. It trades for about 5 dollars and change on the NYSE. The trading volume for this stock is about 25,000 to 100,000 shares daily.

When the market opens around 9:30 am, I start monitoring the bid-ask spreads and place a limit order for the price I feel I am comfortable buying the stock; usually a couple of pennies below the bid price. I leave this order for about couple of hours but it never executes. Around lunch time, I try to change the order to something between the bid-ask spread. Still, the order does not get executed. Once I got frustrated and tried to place the limit order on the ask price and still it did not get executed.

I am not sure what is going on here. I have done the above exercise for a couple of days now but there is no luck with this stock. Is market order is a way to go? Is it a good idea to place a market order for a thinly traded micro cap stock?


Daddy Paul said...

What I used to do is go one cent above the bid price. If the trading robots matched it I would go one higher. When I went high enough the bots would drop their bid back to where they were when I started and my bid would stand alone. I knew then what the real price was. Sometimes the ask would drop down and grab my bid.

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Financial Independence said...

Two facts, as food for thought:
- Only 202 of the 500 biggest companies in the United States in 1980 were still in existence 20 years later.
- On December 29, 1989, Tokyo's Nikkei stock average reached its all-time peak of 38,915.87. Twenty years later, the Nikkei has never again reached that level — and, in 2009, reached a new low of 7,054.98.