Penny Stock Trading Explodes

Investors are taking ever greater risks in order to earn returns. After the GameStop mania and the flight to cryptocurrencies, we are also seeing more speculative trading in penny stocks. Those are stocks that change hands for less than a dollar and can be highly volatile. Regulators are grappling with an influx of retail investors, which are driving the prices of these speculative stocks to record highs.

In December, more than 1 trillion shares were traded on the New York Stock Exchange for the first time. In January, there were again more than a trillion, while this month we are heading for a total of almost 2 trillion. According to Bloomberg it's mostly online groups on Twitter, Reddit and other chat rooms, where retail investors convince each other to buy certain stocks.

Trading in penny stocks has exploded (Source: Bloomberg)

Speculative mania

An example of this speculative madness is the trading of SpectraScience. This stock has already risen by 633% since the beginning of this year, while the company has not published figures for years and cannot be reached by phone. At the end of January, speculators were trading 3.5 billion shares of this company, with its share price rising by 167%. In recent weeks, the trading volume in this share has exceeded 500 million units per day. By comparison, that was about twelve times the average trading volume in 2020.

The U.S. regulator halted trading in the stock on Feb. 10. The available information about the company is said to be out of date and the regulator feared 'manipulative business practices'. Thus, there are more cheap stocks that fall prey to speculative investors. It's reminiscent of the stock frenzy of 1999, when investors also bought all kinds of shares of companies that didn't make a profit or even had a product or service. How long will that last?

The image above the article is taken from QuoteInspector and is available under the Creative Commons license

This contribution comes from Geotrendlines