Why a Stock With Low Trading Volume Is Harder to Sell Than You Think
6 min read
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6 min read
Your portfolio app says you own 500 lots of a small IDX stock. At the last price of Rp1.000, that is Rp50 million. You decide to sell. Will you get Rp50 million?
Maybe not. If few people trade that stock, the price on your screen is only the price of the last small trade. It is not a price you can sell a big pile at. This is the risk of low liquidity stocks, and this post shows how it works with simple numbers.
Liquidity is how easily you can turn something into cash without moving its price. A liquid stock has many buyers and sellers at all times. An illiquid stock has few.
One Indonesian academic paper puts it plainly: stocks with low liquidity are harder to sell, so investors tend to sell in small amounts and not often (Gunadarma journal).
You can see liquidity in the order book. This is the live list of waiting orders. Buyers wait at one set of prices. Sellers wait at another. Educational sources describe liquidity as queues of orders on both the buy side and the sell side (Investasiku).
First, a unit. On the IDX, one lot is 100 shares. This has been the rule since 6 January 2014, down from 500 shares before (Mercu Buana journal, Kontan). We could not open the IDX page itself, so check idx.co.id for the current rule.
So 500 lots is 50,000 shares. At Rp1.000 a share, that is Rp50 million.
The bid is the price a buyer is willing to pay. The ask is the price a seller wants. When you sell with a market-style order, you take the bids that are already waiting, starting from the highest.
Here is an invented order book for a made-up stock, PT Sepi Contoh. It is NetWort arithmetic, not a real company. The last traded price is Rp1.000.
| Bid price (Rp) | Lots waiting to buy |
|---|---|
| 1.000 | 20 |
| 990 | 30 |
| 980 | 50 |
| 960 | 100 |
| 930 | 300 |
Only 20 lots wait at the top price. You want to sell 500. There is not enough demand at Rp1.000.
Your sell order fills the highest bid first, then the next, and so on until all 500 lots are gone. Here is what you collect:
| Price (Rp) | Lots filled | Cash received (Rp) |
|---|---|---|
| 1.000 | 20 | 2.000.000 |
| 990 | 30 | 2.970.000 |
| 980 | 50 | 4.900.000 |
| 960 | 100 | 9.600.000 |
| 930 | 300 | 27.900.000 |
| Total | 500 | 47.370.000 |
You hoped for Rp50.000.000. You got Rp47.370.000. That is Rp2.630.000 less, or about 5,3%. Your average price was Rp947,4 a share.
Worse, the last trade was at Rp930. The screen price is now 7% lower than before you sold. Every other holder sees a loss on paper too.
We call this price impact: your own order pushes the price. In a very liquid stock, 500 lots might fill at one price and the impact would be close to zero.
There is also the bid-ask spread, the gap between the best bid and the best ask. In a thin stock the gap is wide, so the cost of a round trip is high. We cover that in our bid-ask spread post.
Spread and depth are different problems:
A stock can have a narrow spread and still be shallow. You only find out when you try to sell a large amount.
Several reasons show up in IDX news and rule changes:
The IDX and OJK have also been working on rules for liquidity providers, firms that quote prices to narrow the spread in thin stocks (Investortrust). We did not find a rule that sets a minimum order book depth for any stock.
You do not need special tools. Ask these questions about any stock:
A limit order, where you set the lowest price you accept, protects you from walking too far down the book. The trade-off is that it may not fill.
A portfolio tracker multiplies your shares by the last price. That is a fair way to track value, but it assumes you can sell everything at that price.
For liquid stocks this is close enough. For thin stocks it can overstate what you would really collect. Treat the number as an upper estimate, not a promise.
Open the Explore screener and look up the IDX stocks you own or follow. Compare how steady each one is, then check the order book in your broker app for your biggest holding. Ask yourself one question: if I had to sell all of it this week, how far down the book would I go?
For a sense of a very liquid name, see how a large bank such as BBCA behaves, and compare it with a small stock you hold.