Small Cap Nickel Spreads

 Stock traders may want to beware of small cap

nickel spreads.

http://profitabletradingtips.com/stock-trading/small-cap-nickel-spreads

 This is a proposed change in trading penny stocks.


 Penny stocks have traded in one cent increments for

a dozen years ever since the markets went to a
decimal system instead of fractions for trading
stocks.


 The proposal being floated comes from the major

markets and from Citi Group and suggests that
stocks with market capitalizations of less than three
quarters of a million be traded in five or even ten
cent increments.


 The argument is that a change to small cap nickel

spreads would add liquidity to that section of the
market as it would attract market makers in search of
higher profits.


 Such a change could also be the death knell for

those who currently make their money scalping in
day trading on penny stocks.


 Basically a move to small cap nickel spreads would

increase commissions and attract market makers
who would in turn entice the average trader into this
market sector.


 Perhaps we can rework the old Roman quote to say,

let the trader beware.


Is Volume Good, and

for Whom?


 There is an old saying that a man visited a yacht

club and gazed at all of the big and fine yachts.


 Who owns these yachts, he asked.


 Why, stock brokers own these fine yachts, was the

reply.


 Then where are the investors’ yachts, the man

asked.


 There was no reply.


 This proposal seems to us to be an attempt to inject

money into the pockets of stock brokers and
investment houses and not an attempt to make the
market more liquid for the benefit of the average
investor or trader.


 It could drive scalpers out of this section of the

market as it increases the risk of a bad computerized
trade.


Trading Volume and

Growth?


 The argument being floated is that somehow small

companies will flourish and have more money to
reinvest and grow if small cap nickel spreads
become the order of the day.


 Day trading strategies will need to be readjusted.

And some will simply disappear.


 Along the way market makers will work to attract new

investors and traders and reap their rewards.


 To the extent that a given stock trades more

frequently that does not profit a company.


 To the extent that increased attention to a promising

stock drives its price up that could benefit a growing
company and help it grow.


 One rational suggestion that has been floated

regarding small cap nickel spreads is that there
should be a trial period with a reasonable number of
small cap stocks to see how this change would world
in the real world.


 That is perhaps a reasonable suggestion.


What to Do?


 Well executed technical analysis of stocks is the

keystone of successful stock trading.


 Smart traders only trade when trading signals are

highly in their favor.


 To the extent that a penny spread system

encourages poorly thought out trades it may be time
to go to small cap nickel spreads.


 On the other hand penny spreads provide liquidity

that nickel spreads will not.


 If market makers really wanted to promote liquidity

they would enter this section of the market and
promote it, even with penny spreads.


 It seems to us that perhaps too many market makers

are looking to buy bigger yachts.


Small Cap Nickel Spreads

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Small Cap Nickel Spreads