Posted on: 02 July, 2004
Author: William Cate
NASD Bid & AskBy William CatePublished April 2000[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] Nasdaq and the Ove... NASD Bid & AskBy William CatePublished April 2000[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] Nasdaq and the Over-the-Counter Bulletin Board (OTCBB) trade on aBid and Ask format. Bid is the price an investor is willing to pay for astock. Ask is the price that a shareholder is willing to sell the stock. The spread is the monetary difference between the Bid & Ask price.A stock with a bid of ten cents and an ask of twenty-five cents has aspread of fifteen cents. If the spread is wide, for instance a bid oftwenty-five cents and an ask of two dollars, few shares trade. If all otherfactors are equal, a narrow spread increases the stock's trading volume.You can use the spread to regulate the trading volume. If there's a Bid, without an Ask, the share price is likely to moveup. This is a situation where the buyers are seeking to form a market. Ifthere's an Ask without a Bid, the stock will collapse. Trading volume equals liquidity in a stock. Most shareholders are lockedinto Penny Stocks. They can't sell at a profit, without depressing theprice of the stock. To create the illusion of liquidity, some companies doround robin or wash trades. The insiders trade the stock among themselves.The goal is to attract investors by showing high volume trading. Stockbrokers love wash trades. However, the practice doesn't create a strongshareholder base. The issued stock of any company can be divided into insider sharesand the float. The public owns the shares in the float. If you see a highvolume stock, check the float. If it's small the odds favor wash trading bythe insiders. Few buyers buy stock. They buy the right to own the stock fromtheir brokerage firm. Their right is reflected on their monthly brokerageaccount statement. Essentially, their right is an option issued by thebrokerage firm to the client. It qualifies the client for share priceappreciation, if the stock moves up. Of course, to benefit from share priceappreciation, the shareholder must sell their stock (option). Few publicshareholders sell in an upward moving Market. Unless the buyer becomes a registered shareholder of the company,the buyer doesn't own the stock. This fact allows professionals to sellnonexistent stock. The sales are short sales relying upon the shareholderaccepting the brokerage firm's account statement as an option on theirstock. The short sales add to the float. The short sales depress thecompany's share price. As a public company trading on the OTCBB or Nasdaq, you must manage your Bid & Ask price. A well-run public company ensures shareholder liquidity. OTCBB companies should offer liquidity without creating the illusion of a large trading volume. The company must make short selling difficult. The company's share price must slowly move up. There's a time to build the company and its shareholder base. There's a time to promote the stock. If you lack the right shareholder base, your stock promotion will end with a major decline in your share price.To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] Article Tags: Trading Volume, Share Price, Short Sales Source: Free Articles from ArticlesFactory.com