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Fractional Pricing and Liquidity in Extremely Low-Priced Stocks

Article Quant Q&A · Author: Chris
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Summary

The discussion considers whether a brokerage must accept orders at five decimal places for a penny stock whose reported prices appear between two four-decimal price levels. The replies caution that a displayed or calculated price between those levels does not establish that investors can trade meaningful quantities at that precision. It may reflect a block transaction’s total value divided by its share count, rather than an order submitted at that per-share price.

The main practical concern is liquidity. A very low share price can make even a large share order small in dollar value, while transaction costs and the difficulty of finding a counterparty may still be substantial relative to the trade. The answers are speculative because the exchange, country, and trading context are unspecified; they do not identify a brokerage or establish how a particular venue handles price increments.

Key ideas

  • A reported fractional share price does not prove that executable orders are available at that precision.
  • A block trade’s total consideration divided by its share count can produce a per-share figure with extra decimal places.
  • Liquidity may be scarce in very low-priced stocks, making execution difficult.
  • Trading costs can be large relative to the value of a low-priced stock transaction.
  • The discussion does not specify a venue or confirm a brokerage’s order-price rules.

Tags

EquitiesExecutionMarket microstructure
Full text
# Does anyone know of any brokerages that allow trades to be placed in prices out to the 5th decimal place?


# Does anyone know of any brokerages that allow trades to be placed in prices out to the 5th decimal place?












I have owned a penny stock for a while now that typically trades between \$0.0002 and \$0.0003. The thing is, though, that it most frequently trades BETWEEN those two price points and doesn't actually hit them very often. The platform I use to trade (along with any others I've so far investigated) only allow trading out to the 4th decimal place.

I figure someone somewhere has to allow trades out to the 5th decimal place or the stock price couldn't be fluctuating within that range. It affects the value of the stock. It makes me gain or lose X amount of dollars throughout any given day. I'd like to be able to make trades with it, but since the price doesn't often hit either of those marks it really limits what I can do with it. So, is someone aware of a trading platform that trades out to the 5th decimal place?

## Answer by eSurfsnake (score 1)

https://quant.stackexchange.com/a/70523

The major problem is you are assuming there is liquidity out there at 5 decimal places. Chances are such a stock 'trades by appointment'and the apparent fluctuations are driven by unique situations.

Also, your transactions costs are going to be outrageous w.r.t. price. Imagine you trade 1,000,000 shares at .00002.Someone must handle all million shares when the value is only in the hundreds or thousands of dollars.

## Answer by André Bittencourt (score 0)

https://quant.stackexchange.com/a/74311

As I don't know your country, context and exchange you are trading, I can only speculate.

But a my guess would be that no one has placed an order with more than 5 decimal places. I guess that someone has trade, through a dealer, a block trade of a certain amount N of shares for a total price of X. When you divide X by N you happened to have more than 5 places.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.