How does a stock get to 0.0001 ?
So you may be asking yourself,
"How the heck does a stock go this low?"
Well, the answer to that depends on the stock,
but generally it is due to dilution,
and the subsequent supply of shares
outpacing the demand for them.
If nobody is willing to buy the stock,
and the selling continues,
the stock goes down down down,
all the way to 0.0001… and then,
when nobody is willing to buy, not even at 0.0001,
the bid disappears.
These are "no-bid" stocks,
and typically their asking price, or offer,
then becomes 0.0001.
What is so dangerous about Trip-Zero's ?
Selling is the hard part...
So you might be thinking,
"What's so hazardous about a .0001 stock?
It can't go any lower."
Well.. that's not really true.
First of all, if the stock has no bid
and you buy at the ask of .0001,
you've immediately assumed a 100% loss.
Why? Because, with no bid,
you couldn't even sell the stock readily
if you wanted to.
Remember, you can't sell it for less than 0.0001.
So, to simply get out of your position even,
you'd have to put your sell in at .0001,
and hope your shares are bought up by someone else.
Now the issue with this is
you are now at the very back of a long line
of people trying to sell shares for .0001.
That's the way the market works.
Orders sent to a particular market maker
get filled first come, first serve,
and if you're at the back of a long line,
you are going to be waiting
until the last of the shares offered at .0001 - yours
- are bought.
Once in a while you might get lucky
depending on what market maker your broker uses.
Say you use E*TRADE,
which has its own Market Maker (ETMM),
and you are the only one trying to sell shares
through ETMM at .0001.
If a fellow Etrader comes along and decides to buy shares,
they will most likely match your orders
and you'll get filled
before the line of people waiting behind NITE or AUTO.
Chances are,
your market maker already has a bunch of orders queued,
but every now and then this might work to your advantage.
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