Every trader and investor on the stock market is used to investing in stocks with moderate to high amounts of volume. After all, these are the most ideal stocks if you are looking to invest in the market. However, there is also a third type of stock that often gets ignored and looked over because of the various bad qualities attached to it – no volume stocks.
The investing world is huge and it accommodates all types of stocks on the platform and no-volume stocks are just one of them. However, investors often choose to stay away from these stocks because of their extremely low liquidity and almost non-existent demand. Instead, investors often choose to invest in stable stocks such as Forex and you can learn more about them if you visit this website.
But are stocks with no volume really that bad? Do they have no advantage whatsoever? What are the various disadvantages and cons of keeping stocks with no volume? Many investors don’t know the answers to these questions and many don’t even know what no-volume stocks are.
That is why in this article we will list several pros and cons of buying stocks with no volume. After reading the article till the end, you yourself will get to decide if buying no volume stocks is a good choice or not.
It may seem absurd to many investors reading this right now that we consider a lack of liquidity as a good thing and an advantage of investing in no volume stocks. Let us explain and we will clear your doubts right away. No volume stocks have almost zero to no liquidity, meaning that their stocks go through drastic value change every time they are bought or sold.
In most investing circles, this is considered the worst thing that can happen to you as an investor because low liquidity means that whatever funds you are investing will have to accommodate value change and will be dramatically increased or decreased. Essentially, when you buy shares worth $125, you may have to end up paying more than that because the value of the stock just shot up dramatically.
However, that might not always be a bad thing. If you do your study and predict the future of the stock that it may have demand in the future, then even if you do end up paying excessive amounts of money for the stock, you still have the chance of getting a good return.
Consider this – you buy $90 worth of no-volume stocks, its price shoots up, and by the time your transaction completes you end up having to spend $100 instead of $90. However, since there is not much demand for no volume stocks, your actions may start a chain event of increasing value and attract other investors to invest in the market.
Before you know it, you may have the opportunity of cashing out returns that are worth twice or thrice your initial investment. However, the chances of this happening are really low and unless you are positive about the future of the stock, we strongly recommend against doing so.
2. Lack of Liquidity
Yes, the one advantage of buying no-volume stocks is also its biggest disadvantage. Investors who invest for short periods, such as day traders, absolutely abhor any and all stocks that have low or no liquidity regulating them. The reason for that is simple – traders like to quickly purchase stocks and sell them at the same speed and at the same price at which they bought them.
This is impossible to do with no volume stocks as their value hikes up the moment you buy them. This makes it impossible to gain any sort of short-term profits from them, which is how most investors make their money. Even in the long-term, there is no guarantee that a stock with no volume will have better liquidity in the future and won’t lead you to loss the moment you decide to sell it.
For this exact reason, many investors stay away from no-volume stocks with a ten feet pole at all times.
3. Lack of reputation
Most no-volume stocks are stocks of companies that have no credibility or reputation backing them. For all you know, you could be investing in a company that is actually a scam company or is involved in illegal activities. For ethical and economical reasons, it doesn’t make any sense to invest in no-volume stocks – not until the companies they are part of show some form of credibility or reputation.
4. No volume stocks are often scams
If you ask any professional investor about investing in no volume stocks, they will tell you to not do it – not because of their lack of liquidity or credibility, but because most no volume stocks are a part of investing scams. There are many scammers out there that lead gullible investors into the false sense that no-volume stocks are an amazing investment and they should invest in it.
However, as soon as they do that, these scammers withdraw their stocks almost instantaneously matching the purchase amount of the gullible investor. What this does is give the scammers a hefty profit because they cashed out right at the perfect time where the price hiked up because of the investor’s purchase.
The investor on the other hand is stuck with an investment that has no liquidity nor any margin of profit nor any substantial return value.
5. Huge transaction time
Another big disadvantage about no volume stocks is that they have extremely large transaction times. You may set out to buy a set amount of stocks on a day but you may not get them until the market finds a seller who is willing to sell that amount which can take a day or two to happen.
By then, the lack of liquidity has already changed the market value dramatically and you get a much lesser amount of stocks with your money than you originally thought you would, leading you to a big loss.
Investing in no volume stocks or not is an investor’s own decision, however, we will strongly recommend against investing in them because of the various cons and disadvantages that sheerly outweigh the pros. We hope this article was insightful for you and if it was, please consider following our website for regular updates as it will help us out immensely.