1.The Ask – The price someone is willing to sell their shares for
2.The Bid – The price someone is willing to buy the shares for
3.The Size– The amount of shares someone wants to sell or buy
4.The Market Maker ( MPID)- The broker who makes the transaction for us..on level 2 screen it looks like this
NITE (mm) 5,000(size) .16(bid) .17(ask) 5,000 ATDF(mm)
So market maker NITE (4 letter initial of firm name) is willing to buy 5,000 shares(or more because they are not required to show the actual size over 5k) for 16 cents.
Market maker(ATFD-ameritrade) wants to sell 5,000 shares( or more) for 17 cents.
5. The Spread– the difference between the Bid and Ask ..as in the above example .. 1 cent on this execution
6. Volume – The amount of shares trading hands each day.. buy and sell
7. Level 2 – subscribe to it on your online discount broker site if you haven’t yet ..it allows you to see bid/ask/size as the mm’s buy and sell in real time. You’ll see the bids and asks stacking and you will Learn and Earn.
8. Time and Sales- gives you the time the trade was executed ..the size(amount of shares traded) and the price..It’s important to see the sizes because in the penny stock world the mm’s,bigboys,insiders will print small sizes to get the price going up..traders on level 1 only see the last price which often times is deceiving.
9. The Gap up- In penny stocks you will often see a significant price increase or decrease from the close to next day open without any trades being executed. Ex. ABCD closes on monday at .10 then monday night or before the bell tuesday ABCD comes out with great news or it getting promoted or both…well..people don’t want to miss it so they start putting in pre market orders which make the price GAP UP…so now it opens at .12 … a 2 cent gap ….this is great for sellers ..but buyers beware of the GAP UP!
10. Liquidity- when the stock is trading with huge volume it is said to be liquid (easy to get in and out of)…in the pennies be careful if the stock is not liquid you won’t be able to sell out of it.
11. The Float- The total number of shares available or “in the market” that can be traded..the float is very important ..low float = volatility (chances for big gains and losses)
12. Outstanding shares- The amount of tradable shares in the market(the float) plus the restricted shares held by the company insiders that can’t be sold until a certain date.
13. Market order- when you place a market order it will guarantee that your buy or sell order will get filled…but at what price? (the best price). But that might not be the price you wanted. You can use market orders on stocks that trade with high volume.(like google or apple)..be careful in the pennies!
14. Limit order- Now your talking! a limit order allows you to set the price you want to buy or sell your stock…. or a better price if it goes up or down before it gets filled. You can also limit the time til cancelled. You use limit orders on low volume highly volatile stocks(pennies).
15. Shorting- your betting on the stock to go down…you have a broker(if you can find one) that will let you borrow from his account or someone else’s at a certain price (let’s say 100 shares at .50 cents)..he sells them for you and you get $50 bucks in your account. But now you have to get those 100 shares back to the broker. So you have to buy 100 shares in the open market. If you buy the 100 shares back (cover)at .10 cents that’s only $10 bucks..so you made $40 bucks and returned the 100 shares to your broker. Done! NOT SO FAST BUDDY…it is very difficult to find a broker that will short penny stocks…plus you’ll need a lot of money in your margin account. And you won’t be able to borrow enough shares to hold a significant position to make it worth it..BOTTOMLINE. Most people outside of the market makers don’t short penny stocks.
16. Market Capitalization- (market cap)- since this is pennyland we deal with small cap stocks. Under 1 or 2 billion dollars depends who you talk to. What we mean by that is the outstanding shares(see above for definition) multiplied by the current share price. So pick your favorite penny stock, go to their investors website, check out their outstanding shares number which could be written as total issued or total outstanding ..then do the math. Is the company your investing in worth that much? In the pennies the companies are usually way overvalued ….but who cares ..as long as there are people willing to buy and sell (usually because of big news or a promo)… whatever the reason …you can make money!
17. OTC minimum quotation tier structure (the size-or amount of shares the market makers have to display on level 2) currently it is 0 to 50 cents they have to show 5,000 shares minimum..51 cents to a dollar 2,500…1.01 to ten bucks 500 ..that’s all we need for the pennies.
18. NEW OTC minimum quotation tier structure beginning November 5, 2012 is …0001 to .0999 (0-10 cents) they now must show 10,000 ..little bump up but will make no difference because 10,000 shares at under 10 cents is nothing ..market makers will still hide and glide. Next is 10 cents to 20 cents they show 5,000 (no change at these levels).. then 20 cents to 50 cents minimum drops to 2,500(these will be stacking up) then 50 cents to a dollar only 1,000 minimum(less than current) then one dollar to 175 dollars they must show at least 100.
19. DTC Chill- The depository trust and clearing corporation imposes trading restrictions on brokers due to regulatory, compliance or other issues with the security. In layman’s terms ..the DTC halts electronic transfer of stocks. Since every trade is done electronically ..the stock basically stops trading. They do this in the pennies because of individuals manipulating the stock, announcing false company news(lying), issuing illegal shares etc. (dirty business practices). What a headache for the company and the shareholders as it takes many months to get cleared.