Penny-stock trading volume has exploded by 2,000% amid the growing influence of retail traders
Rachael McVeigh/Reuters
- A boom in retail trading over the past year has led to a 2,000% increase in penny stock trading, according to data from FINRA.
- February saw 1.9 trillion transactions on the over-the-counter markets, which is where most penny stocks trade.
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A surge in retail investors over the past year has led to a boom in speculative penny stock trading as investors look to make a quick buck.
Over the past year, there has been a 2,000% increase in penny stock trading activity, according to data from FINRA first reported by DealBook. In February, there were 1.9 trillion transactions on the over-the-counter markets, which is where most penny stocks trade. Last year that number stood at less than 200 billion.
The COVID-19 pandemic has led to millions of new investors discovering the stock market, as rolling lockdowns and canceled sporting events led Americans to discover a new favorite pastime: investing.
Retail brokerage firms like Robinhood have seen an influx of customers and trading volumes, and stimulus checks from the government also helped boost trading volumes, as many investors put that money to work in the stock market.
But the lure of getting rich quick in penny stocks is nothing new, and it's only heightened amid a rising stock market as investors look to further juice their gains.
But the risk in buying low-priced penny stocks is considerably higher than buying an exchange-listed stock because regulations and oversight is extremely lax on the OTC markets. Company filings are rarely up-to-date, and promotional press releases often move a penny stock more than its quarterly earnings.
Penny stocks are also more prone to being the subject of a pump and dump scheme, in which promoters quietly buy stock, release promotional materials, and then sell the stock on unsuspecting retail investors.
But the surge in penny stock trading shouldn't come as a surprise, as other speculative investment vehicles have seen a sustained boom over the past year, including but not limited to SPACs and cryptocurrencies.
Whether the boom can last will be the ultimate test for a new cohort of retail investors.
DealBook
from Business Insider https://ift.tt/3bWF2OI
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