Allstocks.com's Bulletin Board: Newbie Question

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Posted by Viper21 on :

Hey,

I've been reading up and looking at penny stocks out of interest and by following a stock, I noticed that the volume of the stock is considerably high in a penny stock as it is compared to a "normal" one. As in 100,000,000 shares compared to 300, 000. And as the day progresses, the penny stocks volume sky rockets.

Now for a penny stock, is this a good thing or a bad thing that the volume keeps rising and isn't there a cap as to how many stocks are available??

Thanks for any feedback.

Posted by Jeremy on :

Well, the primary reason you see such a difference between pennies and normal stocks, is just the price itself. Take a look at this example:

1,000,000 shares traded for two different stocks.

1,000,000 x 0.002 = $2,000
1,000,000 x 15.00 = $15,000,000

As you can see, if a stock is trading in the dollar range, that is a lot more money to move around, compared to something trading under a penny. For example, say you have $500 to invest.. that would get you 250,000 shares of that penny stock, and that's only 500 bucks. But invest that same 500 into a 15 dollar stock, and that only gets you 33 shares of that stock.

So, comparing the volume between penny stocks and more expensive stocks doesn't really mean anything, apples to oranges, the dollar value traded is more important, and also you need to consider the outstanding share count. NASD and NYSE listed stocks typically have outstanding shares MUCH less than penny stocks, penny stocks can literally have a billion shares floating around, so even if the volume is in the millions, it isn't anything to be too concerned about.

[This message has been edited by Jeremy (edited April 15, 2004).]