Why some otc stocks have very large spreads ? What determine price of security ?

I cant understand bid - 1 cent, ask - 100 usd

Some stocks go 1 dollar to 1 cent

 

illiquidity explains the spread. The price of a security should be equal to the sum of all future cash flows discounted back to present value. Gaps between expected value and current price can be explained by things like: liquidity premium and other factors. For OTC stock, this liquidity premia impacts your transaction costs if you are a liquidity taker.

 

1 cent is the highest someone is willing to pay and 100 is the lowest someone is willing to sell.

 

No one is willing to be a MM on the stock. It effectively has no bid or ask, someone just put in a crazy number for both as a GTC with the idea that it's so high/low that it is worth it if they're filled even though the illiquidity means it might take them a long time to exit the position.

 

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Good points on liquidity. REALTY commissions are much more than his example/not very liquid also.
NOT to hard to figure out the market makers message, huge bid/ask spread on a penny stock.
With that huge bid ask spread/slippage may be much worse.

 

good thing i wasnt drinking something when i read this

 

Who are you, Urban VIII?

 

The retail notion of a market maker and how they make money is really just wrong. Market makers in a stock aren’t really trading against you per se. If you have a block order (10k+ Shares), you’ll typically reach out to a broker that is the MM on that stock to get a competitive bid. Other than that you don’t really interact specifically with a market maker, especially if you’re using limits and trying to get nbbo. As a retail trader stop thinking about MMS unless your strategy is specifically trying to front run big block trades. And when you do that you typically want to be the supplier of liquidity to that order (e.g. you start shorting the stock as they buy, etc.).

 

"And when you do that you typically want to be the supplier of liquidity to that order (e.g. you start shorting the stock as they buy, etc.)."

Damn, I better not go near any liquids when i check this thread

 

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LOL Actually i never get a signal[shorting a stock/etf as they[market makers/specialists] buy etc.....]
BUT i did read many times my Market Makers Edge/Joshua Lukeman.I do borrow, so to speak, his 6 month tech stock charts/but with tech etfs.
My banker dad taught me never to blame anyone,so i'm blessed by that;frankly except on this website,i may not know a market maker from a specialist. And i do try to help my broker/market makers/specialists by enrty/exit every week.
[As far as me shorting as they buy;MAYbe in May/but not today@ least by,say, about noon/LOL]