Consequences of buying/selling a large number of shares for a low volume stock?
"The effect of making a single purchase, of size and timing described, would not cause market disequilibrium, it would only hurt you (and your P&L). As @littleadv said, you would be unlikely to get your order filled.  You asked about making a ""sudden"" purchase. Let's say you placed the order and were willing to accept a series of partial fills e.g. in 5,000 or 10,000 share increments at a time, over a period of hours. This would be a more moderate approach. Even spread out over the span of a day, this remains unwise.  A better approach would be to buy small lots over the course of a week or month. But your transaction fees would increase. Investors make money in pink sheets and penny stocks due to increases in share price of 100% (on the low end), with a relatively small number of shares. It isn't feasible to earn speculator profits by purchasing huge blocks (relative to number of shares outstanding) of stock priced < $1.00 USD and profit from merely 25%  price increases on large volume." "I've alway thought that it was strange, but the ""price"" that gets quoted on a stock exchange is just the price of the last transaction. The irony of this definition of price is that there may not actually be any more shares available on the market at that price. It's also strange to me that the price isn't adjusted at all for the size of the transaction. A transaction of just 1 share will post a new price even if just seconds earlier 100,000 shares traded for a different price. (Ok, unrealistic example, but you get my point.) I've always believed this is an odd way to describe the price. Anyway, my diatribe here is supposed to illustrate the point that the fluctuations you see in price don't really reflect changing valuations by the stock-owning public. Each post in the exchange maintains a book of orders, with unmatched buy orders on one side and unmatched sell orders on the other side. If you go to your broker and tell him, ""fill my order for 50,000 shares at market price"", then the broker won't fill you 50,000 shares at .20. Instead, he'll buy the 50 @ .22, then 80 @ .23, then 100 @ .30, etc. Because your order is so large compared to the unmatched orders, your market order will get matched a bunch of the unmatched orders on the sell side, and each match will notch the posted price up a bit. If instead you asked the broker, ""open a limit order to buy 50000 shares at .20"", then the exchange will add your order to the book: In this case, your order likely won't get filled at all, since nobody at the moment wants to sell at .20 and historically speaking it's unlikely that such a seller will suddenly appear. Filling large orders is actually a common problem for institutional investors: http://www.businessweek.com/magazine/content/05_16/b3929113_mz020.htm http://www.cis.upenn.edu/~mkearns/papers/vwap.pdf (Written by a professor I had in school!)" First, If you buy $10K of a penny stock and try to sell it that afternoon, you probably won't get your money back. The bid/ask spread may cost you dearly.  On the shady side, if you are able to afford to trade enough shares to attract attention, the interest of those who believe the volume is an indication of some real event happening, you may pump it high enough to make some nice money, selling into the ensuing rise. This is a classic pump and dump (which often but not always, includes posts on message boards) and it is illegal. The same way this volume attracts traders, it can also attract the attention of the SEC.  This should be read as a narrative, not as advice. If anything, it's advice on what not to do. If you are the only one who puts in a large market buy order, then it would definitely push the price up. How much up would depend on how many would be willing to sell at what price point. It would also be possible that your trade will not get executed as there are no sellers. The same would be true if you put in a large sell order, with no buyers. The price would go down or trade not get executed as there aren't enough buyers. It's illegal and you can go to jail because it exploits the small companies and their investors who believe in the company.
"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is:  An unlimited (""at market"") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,100@180.03), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (""limit up""). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on ""market impact"" if you are interested. I understand the general principal that when significant buy orders   comes in relative to the sell orders price goes up and when a   significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price." The future shares will be fewer in number, yet have claim to less cash in the bank. All in all, there's little reason the shares would rise in value.  Say there are 1M shares, trading at $10. Market cap is $10M of course. Now, there happens to be $2M cash in the bank so each share had about $2 cash. By taking the $2M and buying 200K shares, 800K shares remain, but why would you think they'd be valued at $12.50? The same $10 value per share is now an $8M market cap as $2M has been disbursed, no less so than if it were given out in a dividend. "That amount of shares is too low to create ""ripples"" in the market. Usually you don't specify the price to sell the stock, unless you are personally on the floor trading the securities. And even then, with a volume of $50,000 it would just mean you threw away $45,000. For most people it would mean setting a $5 sell order, and the broker would understand that as ""sell this security so long the price is above $5"". When you get to the trading volume required to influence the price, usually you are also bound by some regulations banning some moves. One of them is the Pump and Dump, and even if you are suggesting the opposite, it might be in preparation of this scam. Also, the software used for High Frequency Trading (what all the cool kids[a] in Wall Street are using these days) employ advanced (and proprietary) heuristics to analyze the market and make thousands of trades in a short interval of time. On HTF's speed: Decisions happen in milliseconds, and this could result in big market moves without reason.  So a human trader attempting to manipulate the market versus these HTF setups, would be like a kid in a tricile attempting to outrun the Flash (DC comics). [a] Cool Kid: not really kids, more like suited up sharks. Money-eating sharks." yes, there does need to be demand. on heavily traded stocks, there is no reason to be concerned. on thinly traded equities, you will want to check the market depth before placing a sell.  the company is likely not the one that is buying your shares on the open market. Something to consider is that in the case of the company you chose, on the OTC market, that stock is thinly traded and with such low volume, it can be easy for it to fluctuate greatly to have trades occur.  This is why volume can matter for some people when it comes to buying shares. Some OTC stocks may have really low volume and thus may have bigger swings than other stocks that have higher volume. I think if you are only trading stocks with average volume greater than 1M you should not have any trouble entering a 10,000 size trade. If you are you can try a couple of things: Change your order from a market order to a limit order, however this may potentially reduce the number of shares that are actually traded on that day, and you may miss out on some or all of your order. Limit your trading to more liquid stocks, say average daily volumes above 10M or 100M. Apart from that you might have to just put up with some extra slippage and incorporate it into your trading plan. That is you can reduce your R multiple to allow some slippage. If you are looking at long-term investments then you can look to Dheer's answer and see that it doesn't matter whether the money is large or small, the return will be the same.  When it comes to shorter-term investments, it can actually pay to be a smaller investor. Consider a stock that may not be trading in high volume. If I want to take a position for 2,000 shares, I can probably buy it quite quickly without moving the market considerably.  If I was managing your hypothetical portfolio opening a position for 1,000,000 shares, it can cause the price to go up significantly because I have to execute the order very carefully in order to not tip my hand to the market that I want a million shares.  Algorithmic traders will see the volume increasing on those shares and will raise their asking price. High speed traders and market makers will also cause a lot of purchasing overhead. Then later when it comes time to sell, I will lose a percentage to the price drop as I start flooding the market with available shares. Because swing trading isn't the only reason to buy a stock, and it's not the only way to make money on a stock.  I do not have the expertise to make advice one way or the other, but I personally I feel swing trading is one of the worse ways to invest in the stock market. To answer your specific questions: In the previous post, I outlined a naive trade intended to make $1,000 off a $10k buy, but it was shown this would likely fail, even if the stock price would have increased by 10% had I not placed the trade. Another way to state this is that my trade would disrupt the stock price, and not in my favor at all. So, that means I'd have to settle for a smaller trade. If I bought $100 worth of the stock, that size of a buy wouldn't be too disruptive. I might succeed and get $10 out of the trade (10% of $100). But my trade fee was $8 or so... To summarize, you are completely correct that even hoping for gains of 10% on a consistent basis (in other words, after every single trade!) is totally unrealistic.  You already seem to understand that swing trading on low-volume stocks is pointless.  But your last question was... So how do people make any significant money trading low volume stocks--if they even do? I assume money is made, since the stocks are bought and sold. I have some guesses, but I'd like to hear from the experts. ... and in a comment: Then if no one does make significant money trading these stocks...what are they doing there on the market?  The answer is that the buying and selling is mostly likely not by swing traders.  It's by investors that believe in the company.  The company is on the market because the company believes public trading to be an advantageous position for them to receive capital investments, and there are people out there who think that transaction makes sense.  In other words, real investing. Typically this isn't a random order- having a small volume just means it's not showing on the chart, but it is a vlid price point. Same thing would've happened if it would've been a very large order that shows on the chart. Consider also that this could have been the first one of many transactions that go far below your stop point - would you not have wanted it to be executed then, at this time, as it did? Would you expect the system to look into future and decide that this is a one time dip, and not sell; versus it is a crash, and sell? Either way, the system cannot look in the future, so it has no way to know if a crash is coming, or if it was a short dip; therefore the instrcutions are executed as given - sell if any transfer happens below the limit. To avoid that (or at least reduce the chance for it), you can either leave more distance (and risk a higher loss when it crashes), or trade higher volumes, so the short small dip won't execute your order; also, very liquid stocks will not show such small transaction dips. No, at least not noticeably so. The majority of what HFT does is to take advantage of the fact that there is a spread between buy and sell orders on the exchange, and to instantly fill both orders, gaining relatively risk-free profit from some inherent inefficiencies in how the market prices stocks. The end result is that intraday trading of the non-HFT nature, as well as speculative short-term trading will be less profitable, since HFT will cause the buy/sell spread to be closer than it would otherwise be. Buying and holding will be (largely) unaffected since the spread that HFT takes advantage of is miniscule compared to the gains a stock will experience over time.  For example, when you go to buy shares intending to hold them for a long time, the HFT might cost you say, 1 to 2 cents per share. When you go to sell the share, HFT might cost you the same again. But, if you held it for a long time, the share might have doubled or tripled in value over the time you held it, so the overall effect of that 2-4 cents per share lost from HFT is negligible. However, since the HFT is doing this millions of times per day, that 1 cent (or more commonly a fraction of a cent) adds up to HFTs making millions. Individually it doesn't affect anyone that much, but collectively it represents a huge loss of value, and whether this is acceptable or not is still a subject of much debate! I had a coworker whose stock picking skills were clearly in the 1% level. I had a few hundred shares of EMC, bought at $10. When my coworker bought at $80, I quietly sold as it spiked to $100. It then crashed, as did many high tech stocks, and my friend sold his shares close to the $4 bottom advising that the company would go under. So I backed up the truck at $5, which for me, at the time, meant 1000 shares. This was one of nearly 50 trades I made over a good 10 year period. He was loud enough to hear throughout the office, and his trades, whether buy or sell, were 100% wrong.  Individual stocks are very tough, as other posters have offered. That, combined with taking advice from those who probably had no business giving it.  For the record, I am semi-retired. Not from stock picks, but from budgeting 20% of income to savings, and being indexed (S&P) with 90% of the funds.  If there are options on your stock, you might sell calls for a few years, but that's a long term prospect. I'd sell and take my losses. Lesson learned. I hope. "I bought 1000 shares of Apple, when it was $5. And yet, while the purchase was smart, the sales were the dumbest of my life.  ""You can't go wrong taking a profit"" ""When a stock doubles sell half and let it ride"", etc.  It doubled, I sold half, a $5000 gain. Then it split, and kept going up. Long story short, I took gains of just under $50,000 as it rose, and had 100 shares left for the 7 to 1 split.  The 700 shares are worth $79,000. But, if I simply let it ride, 1000 shares split to 14,000. $1.4M. I suppose turning $5,000 into $130K is cause for celebration, but it will stay with me as the lost $1.3M opportunity.  Look at the chart and tell me the value of selling stocks at their 52 week high. Yet, if you chart stocks heading into the dotcom bubble, you'll see a history of $100 stocks crashing to single digits. But none of them sported a P/E of 12." Yes it is possible but with a caveat.  It is a pattern that can be observed in many lightly traded stocks that usually have a small market cap.  I am talking about a stock that trades less than 2,000 shares per day on average. The company's value (which should be reflected in the share price) is not how much money it has in the bank, but something along the lines of 'how much money will it make between now and the end of times' (adjusted for time value of money and risk). So when you purchase a share of a company that has, say, little money in the bank, but expects to make 1M$ profit this year, 2M$ for the following 3 years, and say, nothing after, you are going to pay your fraction of 7M$ (minus some discount because of the risk involved). If now they announce that their profits were only 750k$, then people may think that the 2M$ are more likely to be 1.5M$, so the company's value would go to ~ 5M$. And with that, the market may perceive the company as more risky, because its profits deviated from what was expected, which in turn may reduce the company's value even further. What is essential is that company you are selling is transparent enough. Because it will provide additional liquidity to market. When I decide to sell, I drop all volume once at a time. Liquidation price will be somewhat worse then usual. But being out of position will save you nerves for future thinking where to step in again. Cold head is best you can afford in such scenario. In very large crashes, there could be large liquidity holes. But if you are on upper side of sigmoid, you will be profiting from selling before that holes appear. Problem is, nobody could predict if market is on upper-fall, mid-fall or down-fall at any time.