A stock’s daily trading volume is the number of shares traded in a day. The higher the volume, the easier it is to sell a stock, because there are always enough buyers ready to take the stock off your hands at the current price. Conversely, low volume stocks do not have many buyers. If an investor tries to sell a low-volume stock, its price may drop as his order is being executed, reducing the proceeds. To get the best price, the seller must use a few simple but effective safeguards when placing his order.
Obtain current bid and ask offers, with size, from your broker. Most stock trading platforms include current bid and ask prices in the quote. The bid is an offer to buy a certain number of shares at a specified price; the ask is an offer to sell a certain number of shares at a specified price. For example, a quote for XYZ: bid $28.34 100, ask $28.45 500 means that a buyer stands to buy 100 shares of XYZ at $28.34 and a seller stands to sell 500 shares of XYZ at $28.45.
Use a limit order to sell your shares. The limit price is the minimum price you are willing to accept. Current quotes are only binding for the first 100 shares. A buyer with a 1,000 share bid is actually under no obligation to buy the entire 1,000 shares at the current bid price. If your sell order is for more than 100 shares, a sharp trader who sees it may bid progressively lower prices for each 100 share lot, thereby buying the shares from you cheaply.
Decide how fast you want to sell your shares and how much you want to get for them. If you want to sell right away, use the current bid as your limit price; if you are willing to wait for a better offer, you can specify a higher price. Be sure to indicate how many shares you are selling at the limit price you enter.
Enter a day order if you are selling a small lot at the current bid; enter a good-till-canceled (GTC) order if you are selling a large lot and want to get a better price than the current bid. A GTC order is good for up to 60 days. If your order is larger than the current bid size, and/or your limit price is above the current bid, it may take several partial executions to fill. Each time the stock trades up to your limit price some of your shares may be sold -- a process that can take anywhere from several hours to several days, depending on the price moves and trading volume.
Watch your GTC order. If the stock price declines, your limit order may never be executed and you may need to adjust the price downwards if you still want to sell.
In many low-volume stocks there may be a market maker -- a professional stock trader -- behind both the bid and ask offers. A market maker makes his profit by trading against retail investors and other traders. If he senses that you are anxious to sell, he may play games with you by adjusting the bid to try to lowball you on the sell price.
- “PassTrak Series 7: General Securities Representative License Exam”; Dearborn Financial Services; 2003
- “When to Sell. Inside Strategies for Stock Market Profits”; Justin Mamis and Robert Mamis; 1977
- “Technical Analysis of Stock Trends”; Robert D. Edwards and John Magee; 2010