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If I'm aiming to buy a stock at close and sell it at close tomorrow, speculating that the price will increase by then, how many shares can be purchased without affecting the price of the stock such that the increase in the price that I speculated is disrupted? For example, a stock with an avg volume of 20,000 and price of 2$.

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There's no way to definitively answer the question other than to say that less liquid stocks are more apt to move in price than more liquid stocks. Each day, it depends on the buy/sell dispersion in the order book. Given that, let's go with your numbers and make up some more.

If there are 20,000 shares offered for sale from $2.00 to $2.05 (ask price) and no further sellers appear, it will take the buying of 20,000 shares to move price up 5 cents.

OTOH, suppose that there are 20,100 shares offered for sale at $2.00 and buyers take out 20,000 shares at $2.00 then price will remain at $2.00

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  • Just to clarify, do you mean that purchasing almost all shares too will not affect the price much? – Rishi Swethan Sep 13 '18 at 12:53
  • Suppose quote is $1.99x2.00 with size of 30x201. That means 3,000 shares bid at $1.99 and 20,100 shares offered for sale at $2. If buyers/sellers other than me and I buy 20,000 shares at $2.00 then the quote becomes $1.99x2.00 with size of 30x1. Avg daily volume was hit but price did not move. OTOH, if the original size was 30x10 and I bought those 1,000 shares and no new sellers appeared at $2.00 then the next sell order in the order book would be the new ask price. Maybe $2.01? Maybe $2.02? If not much offered sell volume at successively higher prices, share price keeps moving up. – Bob Baerker Sep 13 '18 at 13:09
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The first metric I would look at would be the average daily volume. I would only look to trade stocks with an average daily volume of at least 10x the volume I was looking to trade.

For example, if you were looking to trade 10,000 shares, you would only look for shares with an average daily volume of at least 100,000.

As a second metric I would also only trade stocks with a tight spread. Using these 2 metrics you shouldn't move the market more than a couple of cents with your trades.

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  • Great thank you, so, will it be fine if I buy 1000 shares of a stock trading at 2$ with avg volume of 10,000 – Rishi Swethan Sep 13 '18 at 13:05
  • You're looking at the wrong metric. the average daily volume can not give you an idea of whether or not the stock price will move. You need to look at what shares are for sale and at which price. If there's a huge daily volume then chances are the price won't move (much) but fundamentally you can't make conclusions about one from the other. – xyious Sep 13 '18 at 15:28
  • @xyious - obviously you won't know what the volume for a particular day would be until the day is over, so by using average daily volume (say over the last 50 days) you can use it as part of your criteria in a search for possible stocks to trade. I use this metric myself and none of my orders moves the market by more than a cent or two. Basically you are looking for stocks that will be liquid enough for the size of your order. I speak from experience, where is the backing for your comment? – Victor Sep 13 '18 at 21:56
  • @RishiSwethan - a volume of 10,000 share per day is very illiquid in nature, and you would probably find that the spread would be quite large. You would probably set an overall minimum average trading volume of at least 50,000 (I use a minimum of 100,000) to ensure liquidity and smaller spreads. – Victor Sep 13 '18 at 22:00
  • @Victor From your experience, how much will the price move if you buy on one day, the equivalent number of shares as the average daily volume? – Curt Oct 23 at 18:09
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You are effectively asking how many shares can be traded at or near the close of market without affecting price dramatically. The answer is on average about 3-4% of the volume near close. This varies greatly. It will be much less than 0.5% of the daily volume.

Another factor is the volatility (vol) of the instrument for the day compared to its average vol. The more abnormal the volatility, the larger volumes the close will do.

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You can't easily say for sure, because it depends on many hidden variables like market sentiment. Long term, if the asset has been trading flat, and you slowly buy a bunch at market price, you might not affect it at all. If you buy during an upswing, you might cause a bubble. But it all depends on how other traders watching it will "read" your buy and that may vary quite a lot.

For market orders in the short term, you can get a rough estimate from the order book. This will list price P and amount V for every ask. Add up P1*V1+P2*V2+...+Pi*Vi until V1+V2+...+Vi is the amount you're trying to buy. The moment after you execute an instantaneous market buy, the new market price will be Pi, by definition.

Why the italics? Market buys take nonzero time to process. (In fact, your broker will have to split your market buy into multiple orders, unless there's a single ask big enough to satisfy it.) As soon as one ask is filled the other asks may react. You may trigger stop loss orders which will then place a new ask, potentially changing the set of asks that will be taken. Some asks may be conditional or algorithmic, and when they see you take the first ask, they may immediately shift their price down. Manual reactions will happen soon after your trade completes, and while technically the market price is whatever the asset traded at last, traders have no obligation to follow the last price. Even after you come out of your deep market buy at Pi, they may decide to ignore you and keep trading at P1 anyway. Also, there might be market sells that coincide with your market buy.

Looking at my stock screener, I found that XELB averages about 20k volume and traded last at 2.15. Keep in mind that this is a microcap (only 40M) and it's not very liquid. But here's a 1Y Yahoo chart:

enter image description here

Is there's a relation? I don't see it.

There doesn't seem to be a publicly available order book, but we can look at how volume and price affected each other in the past. Using daily data from the last year, we can try plotting volume vs. difference from previous days OHLC:

enter image description here

Is there a relation? I don't see it.

Well, maybe depending on trade volume during the day, the price was momentarily pushed to very low or very high levels vs. the open of that day? We can plot HLC vs Open of that day, getting a new value of "relative" HLC:

enter image description here

Is there a relation? I don't see it.

Now we can keep looking for more complex relations with more advanced filtering... But I think at this point I've sufficiently demonstrated my point, which is: "There's no easy way to tell."

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The technically correct answer is zero: Every share bought or sold will affect the price.

But if you're the average small investor, talking about buying perhaps a few thousand dollars worth of stock in a billion dollar company, your purchase is a drop in the ocean and your affect on the price will be lost in the statistical noise of all the other things happening out there.

Unless you're talking about buying a measurable percentage of the stock, you're just not going to make any noticeable difference. If you buy $10,000 of a $1 billion company, you're buying 1/1,000th of 1%. You might shift the price by a fraction of a penny.

And if you're planning to buy millions or billions of dollars worth of stock, you should be getting advice from professionals and not some random people on the Internet. :-)

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