Albert owns 2,000 shares of a thinly traded stock. What is likely to occur in this market?

Prepare for the SIE Test with flashcards and multiple-choice questions, enhanced with hints and explanations. Gear up for your securities industry exam!

In a thinly traded market, the volume of shares being bought and sold is relatively low, leading to a situation where even small trades can cause significant price changes. This is due to the limited liquidity available for the stock; there are not enough market participants to absorb trades without impacting the price significantly. When Albert tries to buy or sell his 2,000 shares, the absence of adequate buying or selling interest can result in large fluctuations in the stock price.

The characteristics of thinly traded stocks can lead to large price movements with transactions that might seem small in comparison, as these buy or sell orders can represent a substantial portion of the available trading volume at any given moment. Thus, if Albert places a relatively small order compared to the average daily volume, it can lead to a disproportionate effect on the stock price, which is why significant price changes with small trades is the correct answer.

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