Large 'Buy' orders at 0.0001

Posted by theoracle 
Large 'Buy' orders at 0.0001
March 01, 2011 12:06AM
For example:

[www.ipredict.co.nz]

Why do some contracts have large orders at prices such as 0.0001?

I've a couple of ideas why but if anyone has a definitive answer that would be good.
gr
Re: Large 'Buy' orders at 0.0001
March 01, 2011 01:58AM
Many different reasons, I suspect, but I might place a large order near the margins* for the following:

1) on the off chance that a shock event will permanently change the stock after you've bought it (e.g. the earthquake and the 90 day bill stocks/OCR stocks);

2) on the chance there is a temporary spike in the price, in which case you can place a bunch of standing orders much higher (like the gold stock you've linked to: although this is more of an effort to recoup your money as it will fall on low volume as easily as it rose); or

3) so the trader can make a small amount of money between the very low order and an equally large order placed just under the market maker (e.g. on the gold stock, you could currently place 1000 @ 0.0003, and 1000 @ 0.0105 and potentially make $10.20 through people trading between them - but this is unlikely, as people will no doubt jump in either side of you).

Either way, and governing all of the above, it's a relatively cheap way to potentially make a stack of cash.

* Note that this doesn't need to be 0.0001 or 0.9999, but instead at the closest point to where the market maker stops seeding the market, and where you can place high volume/low value orders.
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