Trading against some of the biggest Wall Street hedge funds is usually a recipe for disaster. They have more money, resources and connections than small investors. However, the tables have turned recently as retail investors from social media rallied to support previously out-of-favor companies like Castor Maritime (NASDAQ: CTRM), a shipping firm that specializes in transporting dry bulk commodities throughout the world.
How to Buy Castor Maritime (CTRM) Stock
With demand for goods down significantly from pre-pandemic levels, some institutions initiated a short sale of CTRM stock.
Essentially a negative bet, a short sale occurs when a trader sells borrowed shares of stock in the hopes that they decline in value. If they do, short sellers can buy back the borrowed stock at a discount and pocket the difference. However, if the price rises, these bearish traders lose money because they must complete the terms of the short contract at inflated valuations.
Of course, covering the short position requires buying the stock, which increases demand and raises the price. Those bullish on CTRM stock anticipate more bears must cover their position before the trade gets out of hand, driving up sentiment.
Follow these steps to buy CTRM.
- Pick a Brokerage
With the advent of the internet and wireless connectivity platforms, you’ll never find a more convenient time to consider investing in the stock market. Today, you have an endless array of choices and perks such as commission-free trading.
Trading apps like Robinhood have captured user attention due to their convenience and "gamified" interface. Emotions, satisfying bells and whistles and more, these apps egg you on to make even more trades. (Note this and keep yourself in check.) Also note that Robinhood previously restricted trading on CTRM stock, though it appears the app removed this restriction.
Finally, make sure you consider brokerages from a holistic perspective and not because of a single incentive. Read about the brokerage’s reputation/user reviews, access to customer service and additional benefits, such as trading education opportunities.
- Decide How Many Shares You Want
Because you execute trades on a share count basis and not on a dollar basis, you must first convert dollars to shares. You can do this by dividing the amount you want to invest by the current price per share.
For instance, if you want to buy $1,000 of CTRM stock as of the Jan. 29 close, you can purchase 1,612 whole shares ($1,000/$0.62 = 1,612.9). Note that some brokerages may allow you to purchase fractional shares.
- Choose Your Order Type
Although investing and trading stocks is remarkably easy once you understand the process, a slight learning curve exists. Before you buy your first stock, you should familiarize yourself with these concepts.
The bid represents the highest price a buyer is willing to pay for a publicly traded security. It is always lower than the ask (barring extremely unusual circumstances).
On the other end of the scale, the ask is the lowest price a seller is willing to accept for a stock. It's always higher than the bid.
Known as the bid-ask spread, this is the difference between the bid and ask prices. You generate profits through speculation while market makers make money on the spread.
If you want to buy a stock at a specific price, you can do so through limit orders. The advantage is full transparency — you control your entry point on your terms. However, the drawback is that the market can move away from your price, even by a small margin, preventing order fulfillment.
Should you wish to execute an order no matter what, a market order is the best choice. It fulfills a request at the next available price. Of course, the benefit is a guarantee that your order will execute during a trading session. The disadvantage is that you won't know the exact price the order will fulfill until the transaction goes through.
A stop-loss order is a safety valve for your portfolio. It executes a sell order when your target stock falls to a certain price. As the name suggests, stop-loss orders are incredibly useful to automatically exit a position when volatility strikes the market. However, the downside is that once you're out of a position, you won't benefit from a reactionary move to the upside, denying you a chance to exit with more money in your pocket.
A stop-limit order is very similar to a stop-loss order except for 1 key difference — it will initiate a transaction only at a specific price. This has a critical advantage in strategic risk assessment. For example, a stop-loss order can get "blown up" if a new session opens the target stock at a substantially lower price. With a stop-limit order, the sell order won't execute until the price reaches your minimum threshold. Of course, if it never reaches this point, you would have been better off with a stop-loss order.
- Execute Your Trade
Virtually all online brokerages function in a similar way when it comes to executing your trade. For market orders, simply input how many shares you would like to purchase and your request will execute at the next available price. For limit orders, you simply add 1 more step — the price you’d like the request to fulfill.
For a fast-moving security like CTRM stock, you may wish to acquire some shares with market orders just to get you on the board. In the next transaction, you can set specific limit orders.
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CTRM Stock History
Castor Maritime made its debut on the Nasdaq exchange in February 2019. While CTRM stock popped higher in the following few months, shares eventually tumbled. Unfortunately, the company suffered from bad timing: the global economy was under pressure from the U.S.-China trade war.
Optimism kicked in during the back half of 2019 as U.S.-China relations started to thaw. However, this was a short-lived benefit for CTRM stock. Soon after, the coronavirus pandemic rippled throughout the world, gutting shares.
Early this year, a social media frenzy sparked a dramatic rally, instilling hope for a comeback.
Pros to Buying CTRM Stock
Many hedge funds and institutional investors took a dim view on Castor Maritime because of the novel coronavirus pandemic. However, you can point to some pros for buying the stock:
- Collective power of the internet: When the masses start moving, it’s difficult to stop this kinetic energy. Plus, profitability inspires more people to get on board the trade. Social media users have coined the term “YOLO” for this phenomenon, which stands for “you only live once.”
- The law of small numbers: A $1 move in a $1 stock represents 100% profitability, whereas a $100 stock will require a jump to $200 to achieve the same percentage gain. Therefore, CTRM offers the possibility of outsized gains, with stocks under $5.
- Pure contrarianism: At some point, the global economy will recover from the pandemic. When it does, the valuation for CTRM stock might already be too high. Instead, it’s better to anticipate the rise, leading to greater gains.
Cons to Buying CTRM Stock
Castor Maritime suffered from some bad timing and these other downsides:
- Following has risks: While there’s safety in numbers, this adage doesn’t always apply to investing. At some point, buyers will blink. When they do, an “emotional” stock like CTRM can tumble in a hurry.
- Dilution concerns: Recently, the number of outstanding shares of CTRM stock increased dramatically. Stakeholders typically don’t like share dilution because it reduces their equity ownership proportion. Dilution may also indicate fundamental weaknesses within the target company.
- Double-edged sword: While the law of small numbers can generate wild profits very quickly, the opposite is also true. Technically, Castor Maritime represents penny stocks. Because of their low prices, penny stocks tempt new investors. But they’re notorious for thrashing portfolios, so stay vigilant.
Think Carefully Before You Join the Party
You might classify Castor Maritime as a self-fulfilling prophecy. Initially, contrarian traders jumped on CTRM stock because hedge funds decided to short it. By collectively driving up the price of Castor shares, it puts pressure on bearish traders to cover their short position and cut their losses.
However, as more people join the party, CTRM has become less about an astute contrarian opportunity and more about fueling the emotions of the masses. As prices rise, speculators conflate the bullishness with a sensible investment strategy.
That’s not to say that CTRM stock doesn’t have a fundamental case to move higher. Eventually, the global economy will recover. When it does, you may regret not buying Castor Maritime now.
However, speculating on an embattled business is always risky. Further, taking on major hedge funds is typically not a sustainable strategy because they have access to resources that most people can only dream about. Therefore, if you decide to invest in CTRM stock, make sure you’re only using funds you can afford to lose.
Frequently Asked Questions
What are the different types of orders?
There are numerous orders, including market, limit, stop, day, good till cancel and stop limit.
What is the difference between the bid and ask?
The bid represents the highest price a buyer wants to pay. The ask is the lowest price the seller accepts for the stock.
About Joshua Enomoto
His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.