Retail investors have made headlines repeatedly this year, most notably for trading in shares of GameStop. But for every GameStop success story, there's a buyer of a penny stock somewhere else, who probably has no idea what they just bought.
Data from the Financial Industry Regulatory Authority reveals that more than 1.9 trillion shares changed hands in February on over-the-counter markets in the US. That's up more than ten-fold on the typical monthly volumes seen last year.
Sell me this pen
The average dollar cost per share for February in OTC markets was just $0.04, strongly suggesting that the vast majority of these trades are for penny stocks, potentially similar to those that Jordan Belfort infamously sold in the Wolf of Wall Street.
Securities traded in over-the-counter markets are generally less scrutinized than those on standard market exchanges like the New York Stock Exchange. Disclosures for those companies are less rigorous, if updated at all.
Trading penny stocks, where prices can move dramatically on just a few trades, promises large fortunes to those with little patience. The problem is that there are few protections for investors, and few ways to research what you are being sold. As Warren Buffett has often opined, nobody wants to get rich slow.
