Benzinga
Penny Stocks are now the main focus of Reddit investors
Why are Reddit Penny’s actions a big focus? Recently, Reddit investors have been focusing heavily on trading low-cost stocks. Why are so many of these social media investors buying low-cost stocks? What are Penny Stocks? Penny stocks are shares in public companies that trade for less than $ 5 per share, as defined by the Securities & Exchange Commission and / or the SEC. Typically, penny stocks represent shares of companies that are in an early stage or that have not yet established significant leadership in their sectors. This does not mean that penny stocks are bad, however. In many cases, these companies are focused on cutting-edge innovation. Therefore, both traders and investors will buy these shares on the basis of speculation, rather than the general fundamentals. The obvious attraction to trading penny stocks is to make money quickly. Not only that, but because of the inherent volatility, these cheap stocks can have massive hikes of 100% or more in a single day. This is what is so attractive to investors and the crazy part is that sometimes traders don’t even know what they are buying. They only focus on the symbol of a penny share. This is where a good understanding of negotiation comes into play. You have things called catalysts that act as a trigger for breaking penny stocks. Reddit Penny’s shares are a big focus One of the biggest catalysts of the stock market last year was the influence of retail traders. Although there have always been “familiar” traders trying their luck in day trading, the pandemic has played an important role in increasing the rate of people entering the market. The millennial generation had already begun to investigate the stock market. But when the pandemic hit, many were unemployed, on leave or working limited hours. This created a unique scenario: Without income, people were looking for ways to earn money. Work options were limited thanks to requests to stay at home and blocking measures. But do you know what everyone can do at home, as long as there is an internet connection? They can negotiate, and that is exactly what we saw last year. The government’s stimulus also gave people some “starting capital” to open their accounts. Coincidentally, the chosen app became Robinhood, and the source of information became social media. Read more: 4 Penny Stocks for your watch list this week, with biotechnology as the focus As with many new traders, the goal is to make money quickly. But how to leverage smaller sums of money and earn larger sums? You could follow the path of the options, but they are a little more complicated for the novice investor. Things like reduced time, expiration dates, strike prices, etc., all come into play when you talk about these types of derivatives. Enter: The Wolf of Wall Street The film inspired a generation of young brokers, instilling a sense of pride in buying stocks that others despised. This “fight against the institution” ideology was the central belief of several major subreddits, including r / WallStreetBets. The moderators adopted an uncompromising attitude towards negotiation. The submarine has accumulated millions of new loyal followers in just the past few months. The growing support of “new money” investors like Mark Cuban, Chamath Palihapitiya, Dave Portnoy and others added more fuel to the fire. Even government figures such as Alexandria Ocasio-Cortez and Elizabeth Warren have spoken publicly on the topic of the “boy” standing up against Wall Street. Retailers say, “I’m not leaving,” as the band of Redditors began to form alliances. Subreddits like r / WallStreetBets, r / PennyStocks and r / Stocks have all built massive followers of loyal members looking to collaborate and, in some cases, mourn with each other and the market has been the centerpiece. This mob mentality would eventually stoke the fire that became GameStop’s (NYSE: GME) massive grip in 2021. The event would eventually spark interest in similar – or friendly – businesses like Express (NYSE: EXPR), BlackBerry Ltd (NYSE: BB), and even Rocket Companies Inc. (NYSE: RKT). The new “meme stock” market niche attracted enough attention for a new ETF to be created, the VanEck Trust Social Sentiment ETF (NYSE: BUZZ). Redditors: Penny Stocks to Watch In addition to the higher-priced “meme stocks”, penny stocks appear to have become the main flavor for Redditors. In addition to the price, smaller stock structures for many of them help to increase volatility and the potential for massive disruptions. Add the community aspect of multitudes of merchants buying, and the coup 1-2 has become an equation for large market movements. On any given day, among the most active stocks on Nasdaq and the NYSE, penny stocks are a big part of the names on that list. Even today, during the morning session, we can see this as a trend. Of the 10 most active stocks on the NYSE & Nasdaq, 7 of them started the day as a penny stock. When you extend this to the 100 most active stocks today, almost 30% is pennies. Well, that doesn’t include OTC penny stocks, for example, and that’s a totally different topic. Although the most active stocks currently listed, Sundial Growers (NASDAQ: SNDL), traded around 90 million shares in the first hour of trading, the most active over-the-counter shares have seen more than 150 million shares traded. Granted, it’s a lower dollar amount But considering that a company like Asia Broadband, Inc. (OTC: AABB), one of the popular stocks on Reddit, registered more than 5,500 deals before the end of the first hour of trading on Thursday . With that in mind, you also can’t ignore the OTC action. Is it risky to buy OTC Penny shares? Many of the OTC pennies on Reddit carry more risk than the major listed counterparties. If you pay attention to some of the trends, you will see that feeling and enthusiasm have become greater drivers than the fundamentals. Unfortunately, this hype has also led to some very revealing problems that traders face: fraud. Believe it or not, all users on social media platforms are not telling the whole truth, and this is something that the Securities and Exchange Commission is cracking down on. Thanks to the short tightening of GME and other major market drivers, the SEC has set out to rid the market of these malicious agents. Read more: 3 top penny stocks below $ 0.01 with the highest volume now In another observation, the over-the-counter market has fewer requirements to list. In fact, some of the most active OTCs have not recorded or reported financial results in months, some not even years. Given this, current information is scarce, which can represent an immediate risk for traders. How much debt is outstanding, what the company’s plans are and if there is a plan at all, these are things that over-the-counter traders will not see in the case of defunct companies. This did not stop them from finding 3, 4 or 5 letters to buy and take a quick look. Something that the OTC Markets Group has done to give more publicity includes things like stop signs for companies at the end of records, signs of yield for those that have published limited information and Skull & Crossbones for stocks that can be heavily manipulated in the market. Reddit Penny Stocks in 2021 The story of starting small and growing up is very old. But in 2020 and 2021, the exponential growth of retail traders emphasized that anyone can make money in the stock market. With Reddit becoming a well-established resource, the community aspect of commerce has grown in popularity and is likely to remain. Now, public companies are even giving some recognition to these traders. In its latest earnings update, GameStop management endorsed the cheerful group of Reddit traders. What’s more, people like Mark Cuban, an avowed investor who gained fame during the dot-com boom, even conducted an AMA on the platform for anyone to ask about investments. The crazy part is that this may just be the beginning of social commerce as we know it. Anna Nekrashevich’s photo from Pexels. See more of BenzingaClick here for BenzingaNFT Stock options trading making big moves this week in speculation © 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.