Penny stocks often experience dramatic price swings, and often these swings can be contributed to nothing more than a large purchase or sale of stock. It is common to see your shares fall or rise 20% or 50% or more during a trading day, and even return to the original price level by the end of that same day. When a company does come out with a significant press release, for example a biotech company gaining an approval from the FDA for its latest drug release, expect the shares to make a huge spike in price, and potentially rise even higher in price the following few trading days. Price explosions of several hundred percent in a matter of hours or minutes are not uncommon for companies who have penny stocks. Stock markets try to match up the highest bid price and the lowest asking price.
When these numbers match a trade takes place. An example of this is when you see a price quoted as $0.50, you know that the last trade was when a buyer and a seller both agreed upon $0.50 for their transaction.When the bid price and the ask price do not match there is a spread. If the highest bid is $0.90 and the lowest ask is $1.10 the spread between the two will be 20 cents.
You will quickly find that penny stocks are subject to much larger spreads, based on a percentage, than more stocks traded at higher prices. It is quite common to see penny stocks with spreads of 20% to 35% when investors and sellers do not match up on the price.
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