Using data extracted from theOTC.today database of promoted tickers, the United States Securities and Exchange Commission offers evidence that penny stocks are a bad bet
December 18, 2016: Last Friday, the U.S. Securities and Exchange Commission's Division of Economic and Risk Analysis released its analysis of trading in OTC stocks. These issuers predominately consist of companies with penny stocks.
Data obtained from theOTC.today played a significant role in the SEC's comprehensive discussion. As mentioned several times throughout the White Paper, the SEC relied on our reporting of promotions as the basis for several components of their analysis.
The White Paper looks at three aspects of over-the-counter (OTC) stocks: (1) the recent trends in the OTC stock market structure and size; (2) the documented properties of OTC stocks; and (3) the differences in returns based on investor and stock characteristics. It reports that 10,000 OTC stocks were quoted at the end of 2013 through 2015, which generated a total trading volume of over $200 billion per year. Not surprisingly, volume is concentrated on those issues which have no registration or reporting requirements, have little to no liquidity (assets), are manipulated through false and misleading press releases and promotion campaigns. These characteristics are likely to lead to penny stock fraud. The paper reports that on average, these stocks create huge losses for traders, rarely growing into a real company. No shock there.
1.8 million trades by over 200,000 individual investors were the basis for the report. which concluded, not surprisingly, that most traders lose money on most trades. Equally unsurprising is that the worst results come from trading in promoted tickers.
Most disturbingly, seniors are reported to be a large portion of the demographic that absorbs losses in ill-intended OTC issuers. We find this plausible based on the numerous emails we've received from older traders claiming to have lost their life savings to the perpetrators of these deplorable schemes.
The White Paper is a must read for all traders in OTC issuers and will hopefully open the eyes of those who delude themselves into believing that trading in these phony baloney companies can result in profits for those other than company insiders, perpetrators of pump and dump schemes, or those traders who are sophisticated enough to take advantage of the gullibility of the average retail investor.