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Thinly Traded Stocks
Thinly traded stocks have little volume, for this reason we use the "thinly traded" adjective. Many OTCBB stocks fit this description and this can lead to a few problems. One typical problem that plagues investors of thinly traded stocks is when market makers "walk down" a stock. Walking down happens when the market makers gradually decrease a stock's value by gapping the stock lower at the opening bell over frequent consecutive days. This clever tactic frustrates many investors into selling their positions which contributes to a further decline in the value of the stock. Another situation is the increased spread resulting from low volume.
In point of fact, this is a controversial point similar to "what came first, the chicken or the egg?" on the whole; an enlarged spread means that there is a great difference between the bid and the asking price for a stock. This spread is often so wide that it scares many potential investors off. For instance, a stock asking twenty cents and bidding fifteen cents has a spread of 25%. You would immediately take a huge loss if you were to sell if you were to buy this stock. The bid and ask are usually a penny or two different on the larger markets. However, a one cent difference between the bid and the ask is a big deal if the stock you are trading only costs a nickel! Does anybody want to buy a stock like that? No one does and that is exactly what happens in a large amount of cases. You must consider this point carefully when deciding to trade a penny stock. You may feel that you have found the greatest stock in the world, but if it has no volume it is for all intents and purposes of no value. What good is owning a stock if there is nobody interested in buying when you want to sell?