Position Sizing for Illiquid Microcaps
Core sizing rules
- Target entry size so a full exit over 3-5 days is <20 percent of expected volume.
- Use limit orders; avoid crossing wide spreads in one clip.
- In baskets, cap any single illiquid name to keep aggregate liquidity risk manageable.
Spread and impact math
- Expected cost per share ≈ half-spread + impact.
- Impact rough guide: 0.1-0.3 percent per 1 percent of daily volume you trade, higher in stressed markets.
- Bake this into your required discount to NCAV/NTAV before entering.
Exit planning
- Pre-plan exit path: time-sliced orders, opportunistic sells on volume spikes, and a catalyst-based deadline.
- Avoid being forced out by margin or risk rules; size so you can wait for liquidity days.
Risk mitigants
- Prefer names with insider ownership but reasonable float to trade.
- Avoid clustered correlations (all small cyclicals).
- Re-estimate volume after catalysts or filings; liquidity can shrink fast.
Internal links and tools
- Balance-sheet events: Shares outstanding changes
- Volume tell: Interesting volume events
- Price pressure: Near-lows scanner
- Sentiment: Short interest changes
- More reading: Resources hub
Compliance note
This guide is educational and not investment advice. Do your own research or consult a professional adviser.
Frequently Asked Questions
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How do I cap size with low volume?
Common rule: keep a position to no more than 10-20 percent of 30-day average daily dollar volume.
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How do I model slippage?
Use half the spread plus an impact estimate based on your order as a percent of average daily volume.
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When should I avoid a name entirely?
If your minimum economic position would exceed 30 percent of average daily volume or the spread is wider than 3-5 percent.