AskGil

By Ask Gil

January 10, 2012 12:09 am ET

Q: I understand that institutions move the market. I hear statements that “the average daily volume on this stock is too thin for institutions to want to get into.” I am uncertain as to the average daily volume and price per share needed in a stock for institutions to consider entering that stock. Please tell me what you suggest to be a minimum “average daily volume” and a minimum “share price” requirement for a stock for an individual investor as myself.

G: Institutions may, in some cases, take positions in smaller, thinner stocks, particularly if they are small-cap mutual funds. However, since the relatively low trading volume and float of these types of stocks makes it difficult to buy a large position, they will often just buy a very small position. I myself prefer to trade in “big stocks,” or stocks that 1) are above $10 in price, because most institutions adhere to some price rule where they will only look at stocks that are a minimum of $10 to $15 a share, and 2) trade at least $35 to $40 million in average daily dollar volume (share price x average daily volume, so that a $10 stock that has average daily volume of 1 million shares has an average daily dollar volume of $10 x 1 million, or $10 million average daily dollar volume).

Remember, however, that if you find a small stock with outstanding fundamentals that trades only 100,000 to 200,000 shares a day, and your account size is small enough so that buying 100 or 200 shares is a good-sized position for your account, you can pretty much play anywhere you want if the stock is sound.