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Investors are reducing their bets on speculative “penny” stocks. According to FINRA, trades of over-the-counter (OTC) stocks have fallen each month for the last 11 months straight. Nicholas Megaw reports for FT:
Many of the riskiest areas of financial markets experienced a surge in activity at the height of the coronavirus pandemic, with amateur traders attracted by rebounding asset prices, government stimulus cheques and an escape from lockdown boredom.
However, the Finra figures are the latest sign of their retreat as volatility rises and the Federal Reserve prepares to raise interest rates.
Over-the-counter equities are stocks that are not quoted on a national securities exchange such as Nasdaq or the New York Stock Exchange. They include smaller companies and those in controversial industries such as cryptocurrencies and cannabis, along with American depositary receipts that make it easier to buy stock in large overseas companies such as Nestlé and Tencent.
Jason Paltrowitz, executive vice-president at OTC Markets Group, which operates the main marketplace for over the counter stocks, said there had been a definite “levelling off” in activity from traders who “just had extra money sitting around”. However, he added that activity remained stronger than before the pandemic, and he expected a “new normal” level to continue into the long-term.
“We’re seeing activity shift to more traditional types of investment,” Paltrowitz said. “Rather than trading off internet hype and meme stocks, [investors] are trading in industries they’re passionate about or things they’ve been thoughtful about.”
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