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Stock Volume

Before purchasing any stock, one key aspect of the company that one has to look at is its volume. To clarify any misunderstandings, the daily volume of a company is the amount of shares that are traded of the stock on a given day.

Even though some great undiscovered stocks have feeble volume, most of the stocks that have minimal volume, 50,000 shares per day or less, have a problem. Although today's stock market has the greatest amount of daily volume in its history, there are still many stocks that have not taken part in this rise.

There are numerous reasons for an investor to avoid such stocks as mentioned above. One reason is that stocks with low volume often have wild swings. By "wild swings" I mean large point swings. These fluctuations are due to the laws of supply and demand. If there is only one available seller of the stock and you want to buy their stock, you are forced to pay what they want for the stock. Another dangerous aspect of owning these companies comes to play when you decide to sell the stock. In some cases, investors are forced to keep shares of a company because there are no buyers of the stock.

If the company releases any bad news, the stock will usually get hammered harder than most stocks. In addition, these companies often have public relations problems. Stockholders of these type of companies are often frustrated by the lack of communications between the company's management team and them.

Of course, one can not judge a company solely on their average volume. If the company's fundamentals are strong, and they are in an exciting industry than one should not rule out purchasing stock of the company. As always one should do a healthy amount of research before making any decisions.



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