August 30, 2011 | In: Trivia
What Happens When a Stock Has No Volume?
There are many stocks that don’t experience any volume activity on a trading day. A recent example of a stock with no trading activity is EAGL. That stock didn’t experience any activity neither on Friday nor on Monday.
Take a look at the Google chart for the above stock, and you can see that the days where the stock had no volume are skipped. In short, when a stock has no volume on a trading day, then its price won’t change whatsoever. Now since the volume is nothing, it means that the stock is completely illiquid, which in its turn means, that any sell or buy transaction, regardless of the size, will significantly deflate or inflate the price.
I would avoid stocks with low or no trading volume at all costs, they are hard to sell, and the significant difference between the ask and the bid doesn’t usually make the stock worth trading. C and BAC (the latter is a stock that I really hate) both have a difference between the bid price and the ask price of only 1 cent. So, if you buy a 100 shares of C, and your commission is only $20 (both ways), then you only need to wait for the stock to increase 22 cents in price in order to start making a profit. If C was one of those bugs bunny stocks, then it would probably have to increase for more than 40 cents before you being able to make a profit.
There’s something that I forgot to mention, when you buy/sell such a stock, you have to wait, sometimes for the whole day before you find a seller or a buyer, and usually, the buy price or the sell price are then completely different than those you thought they were when you first made the transaction, so beware! (I experienced this problem in two stocks: CVBF and BIOS, but the wait was for only a few minutes, because they do have a few hundred thousand shares of daily volume, but imagine if you’re trading a stock with only a few hundred shares of average daily volume).
Again, stay away from stocks that have little or no volume, it’s not fun when you can’t find a seller or a buyer!
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