I've never understood this. Can someone explain why some people place trades for 200 shares on a penny stock?

Question

I have seen stock trades in quantities of 100 or 200 shares on a stock trading at 4 or 5 cents. It doesn't make any sense? The person buying the shares is probably spending more on commission than on the stock?

Answer 1

I've done that with what I call 'loose change'. Sometimes I've got a few dollars sitting around, obviously not going to make a lot of interest and not large enough for something substantial. If some risky thing has been going down but I still feel it worth holding onto (its kinda fun when you sweat over a $90 stock moving a couple of bucks while a stock selling for less than a dime now goes for a buck or two, and yes, I've had that happen), then making an extra small trade can average down the value of your position. When the stock starts to tick up for whatever reasons, you now have a lower break-even or profit point. Again, it is only if you've got a few bucks left not doing anything and at Scottrade for $7 plus a half-point, it doesn't hurt much. Of course, I also got a couple that are cluttering up my list because it will cost more to sell than they are worth today but that is part of the risk, right?

Answer 2

I don't know for sure but maybe it's because those stocks have limited liquidity. Because some penny stocks can be volatile your limiting your risk of being stuck with a stock you can't sell by only buying a few hundred shares.

Answer 3

The person buying is probably buying lots of different penny stocks. Probably buys at high volume. If just one out of 10 of these stocks go up dramatically they make money.

Answer 4

It's the market makers (MM's) making those trades. they do it as part of their manipulation of a stock for whatever agenda they have. I agree, this is certainly not done by retailers like you or me, commission would cost more than the value of the stock.

Answer 5

Why are you so worried? worry about you. Your a worry wart.