The stock market is very liquid -- that is, most stocks trade daily and can be bought and sold instantaneously, at least in reasonable quantity. However, in some instances, a stock may not trade for a day. An actively traded stock may not trade for a good part of a day due to a trading halt, and thinly traded stocks may sometimes not trade for a day or more due to their ownership structure and investor sponsorship.
A company may request that the exchange where its stock is listed halt trading. This usually happens when important news is pending that is likely to affect the stock price. The company feels that it is its responsibility to halt trading in the stock until the news is published so that investors can make informed buy and sell decisions based on new information. A trading halt can last for a day.
Trading Halt Examples
A small biotech company may be expecting a major decision from the U.S. Food and Drug Administration (FDA) on its flagship drug. If the drug is approved, the stock can easily double; if it's denied, the stock can easily lose over 50 percent of its value. Some breakthrough drug trial results may also be sufficiently significant to cause a halt. Other possible reasons include major contract announcements or crucial court rulings.
No Stock for Sale
Some thinly traded stocks are mostly owned by insiders and do not trade much. If no stock is offered for sale, there can be no trades. Investors, especially institutional investors, prefer to buy stocks they can accumulate in sufficient quantity and easily convert back into cash when needed. If not enough shares are offered for sale, they shun a stock altogether. If there is no market in a stock, it becomes hard to sell, such that even if an insider offers shares for sale, there are no buyers.
Another difficulty with trading some small stocks is that the lack of liquidity may cause wide price swings. A stock quote is valid for 100 shares. If an investor places a buy order for 1,000 shares, only the first 100 may be sold to him at the quoted price; the rest may be sold at progressively higher prices. The same applies to sell orders: A sell order for 1,000 may be executed at progressively lower prices. To avoid overpaying or being short-changed, investors place limit orders, such as orders with a specified price. In a thinly traded stock, this can lead to "trench warfare," which is a standoff between buyers and sellers when their buy and sell limit orders are several cents apart and cannot be executed until one side budges. Such a standoff can easily last for a day or more, with no trades taking place.