Why Its Important To Use Limit Orders When Buying Penny Stocks Or Low Single Digit Stocks That Have Very Low Volume
If you are considering buying shares in a penny stocks or low single digit stock understand that penny stocks or low single digit stocks can have very low volume. Volume is the total amount of shares bought and sold on any given day. Very often penny stocks or low single digit stocks do not even trade everyday. The reason some of these companies are very small and unknown companies their not followed or covered by any major investment research firms theirs little news about these companies in the financial news because of their small size. Thats why its always a good idea to place limit orders on stocks with little or no volume. Because the supply of shares available for sale my be very small even a modest increase in the demand for the shares could easily push up the price of the stock by a considerable amount. When you place a market order you are willing to accept the bid offered you have absolutely no control over the price you pay for your shares. But when you place a limit order on a stock you can specify the price you are willing to pay for your shares. Example suppose theirs a stock that you are considering buying it trades for 1 dollar a share so you place a limit order at 1 dollar your order for those shares will only be executed when the bid reaches 1 dollar this way you will know that you will pay no more than 1 dollar for your shares. Never place a market order for a stock with very low volume after the close because you have no idea what price the stock will open at a 50 cent stock could close at 50 cents and open at 75 cents. The spreads between the bid and the ask price can be hugh on stocks trading below 1 dollar. The bid is the price that you are buying a stock at the ask is the price the seller is selling their shares for. Penny stocks stocks under 1 dollar always have hugh spreads spread is the term used to define the difference between what the buyer is buying the stock for and what the seller is selling the stock for. The one disadvantage of a limit order is theirs no guarantee that your order will be executed at the price you have choosen. limit orders can take time to execute particularly if theirs little or no volume in the shares of the stock your trying to buy. To learn more about the differences between market and limit orders ask a stock broker.