Market Maker Tactics
A market maker in penny shares is likely to deal only
in small quantities at the price it quotes. If you
try to buy or sell more, the firm is likely to ratchet
the price up or down.
In a rising stock market, the market maker needs to
find sellers, so shakes the tree and marks the share
price down sharply, causing some shareholders to sell
in panic. The market maker then raises the price again,
and the sellers repurchase the stock. When this rise
is temporary, it is known as a dead cat bounce.
Spread your Risk
Spread your risk by investing in several penny stocks
rather than just one. The combined total should amount
to no more than 10–15 per cent of your equities
portfolio. Of course, not all your investments should
be equities.
Dealers
One way to buy penny shares is through a dedicated
dealer. It is dangerous because the firm may not give
you impartial advice, even if it claims to, and it
may target you with some kind of share ramp. The risk
arises because the dealer acts as principal, which
means it buys shares in bulk, and sells them on to
clients at a higher price. It is acting in its own
interest, and this may not also be years.
The dealer’s offer price may sometimes be below
the open market price, but this does not in itself
mean a bargain.
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