Resource Dictionary

Stink Bids

Increased buying or selling volumes can swing a company’s stock price dramatically in thinly-traded markets. That is to say, if a holder of a large stock position panics and decides to get out at any cost, they may have to fill bids down to a very low price. Over the past, we’ve seen several companies in a position where $5,000 or $10,000 worth of selling would have driven their share price down 30 to 50%.

In such a climate, you have a shot at getting filled at ridiculously low bid prices. What you do is place your “stink bids” at the low end of the bid spread (which can be viewed using the “market depth” function of stock-tracking services, or by asking your broker) and then leave it on the market for an extended period of time-you may just catch a drop in the share price during a bout of panic selling.

Another reason to bid low is that thinly-traded stocks also work in the opposite way: substantial buying can drive the price up quickly. Venture exchanges may be the birthplaces of “irrational exuberance.” Therefore, savvy investors avoid buying at market prices and potentially having to pay a premium for their final blocks of shares. If you are in a rush to pick up some stock, it’s often advisable to make small buys and then wait for the share price to settle back to lower levels.