Position size for small caps

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Dna7272

Hello,

I have been recently investing in small caps. Is there a rule of thumb for choosing the maximum amount of funds I can invest in a small-cap stock without significantly affecting its price?

Let's say there is a small-cap with an average daily volume of 1 mln, with a price of $1. If i am going to invest in this stock $10k, then my order is going to account for 1% of the whole daily volume. I suppose this should move the stock, or not?

What do you do in this kind of situation? 1% is too much or it is still negligible?
 
In my experience, with those specific parameters of $10k on a $1 (even $5 stock) with 1M daily average volume, a market order can move the stock price by a few pennies. Limit orders typically fill with no movement but sometimes the price moves away from the limit order when you place that order.
 
GotherL said:
Nobody is gonna pay attention to a stock that makes a blip off $10k shares being bought. You might be able to move it by 0.5% if your lucky.
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CET said:
It is negligible.
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I am not going to move the market, I wanna avoid affecting markets. How can 1% of the whole volume can be negligible?
 
Vtechno said:
In my experience, with those specific parameters of $10k on a $1 (even $5 stock) with 1M daily average volume, a market order can move the stock price by a few pennies. Limit orders typically fill with no movement but sometimes the price moves away from the limit order when you place that order.
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Ok, that is very interesting. It seems like most people think that 1% is negligible. In your opinion, what is the biggest % of the whole daily volume I can invest without seriously affecting the markets?
 
I honestly don't know as I don't know much about the dynamics of price movement. What I said above is based on my experience only. When the price does move due to the market order within the parameters you provided, the price typically adjusts to where it was within a minute.

For example, yesterday I added 500 shares to my position in $WRAP with a market order at a price of $6.34 but then the price jumped up to $6.38 to fill my order and then with a minute it was back down to $6.34.
 
Dna7272 said:
Ok, that is very interesting. It seems like most people think that 1% is negligible. In your opinion, what is the biggest % of the whole daily volume I can invest without seriously affecting the markets?
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Why don't you just place an order on the bid and wait for someone to sell you it if your afraid of driving up the stock price.
 
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GotherL said:
Why don't you just place an order on the bid and wait for someone to sell you it if your afraid of driving up the stock price.
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Well, I might not get filled if I am going to wait on the bid. That might not be critical for some people, but it is critical for me.
 
So I'm not saying don't play with the pennies but I don't personally touch it for this reason:

Just like the concept of buy the fucking dip concept with big index funds, we call them pennies for a reason. Go to really rural broken school. That's penny stock market for me. Ofc, there will be some who will become successful against all odds and you might pick that. But for the most part, they are gonna be mediocre at best or suffering poverty IRL. This means statistically, I would profit more if I bet against them in general. I might lose a few bets as they become a big shot, but I'd still make enough margin from the rest.

In a similar yet morally unethical concept, I would play pennies if I can short on avg and put stop loss on some that does explode to the Moon. Problem is that the system is rigged because you may not short because they are so-low capped that your broker may not be able to find short inventory for you. So you are limited to just buying and selling... kinda like other markets like China. It's a rigged system.

I would not be comfortable participating in any market where my hands are tied and limited to either just buy or short. I wanna be able to do both especially in volatile market. My 2cents.

Almost forgot. Margin requirements can be changed any time on daily basis by the exchange that your positions is related to. They can raise the margin especially when market becomes volatile. It's how they manage and regulate extreme volatility. They raise the margin req until it becomes too expensive for people to take advantage of it.
 
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