What criteria do readers use for determine that a stock is too illiquid to buy?
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What criteria do readers use for determine that a stock is too illiquid to buy?
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Let's imagine you are looking buying £10,000 worth of a share. The way that I do it is, if the exchange market size X share price in £ is less than £10,000 , then the share may be too illiquid to buy at that quantity in a single deal. For the most part, this is not a problem if the market capitalisation for the company is greater than £100m. But this will depend on the market conditions at the time.
If the market is open then you can try a test deal with your broker. Ask for a price at the quantity that you want to deal in. If no price is available, then the share is not sufficiently liquid for you to trade at that quantity. If you do get a share price provided, then you are normally not committed to dealing.
Spread is a simple measure of liquidity. I seldom buy anything when the bid-offer price difference is >3%.
The spread on Pan African Resources (LON:PAF) is around 2.25% currently which isn't too bad for a small cap.