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A Study in Risk: OTC Markets
Release Date:
2018-02-06
Description:
 

 Risk is always going to be a factor in trading and investing. There is no avoiding it. But there are strategies and techniques to manage it effectively. You need to be ready to approach day trading and investing with smart plans in order to avoid disaster. And when you want to avoid disaster, you want to start by avoiding OTC markets. There is not much to be gained as a novice investor in OTC markets. Only pain.

 

OTC markets are over the counter markets that serve smaller companies that are not listed in the larger exchanges like the New York Stock Exchange and NASDAQ. The smaller cap stocks on OTC exchanges are not subject to the stringent financial disclosure requirements that are the norm on the large exchanges. So traders that wade into OTC markets are at the mercy of low information stocks. That can be a dangerous thing. Information is a valuable currency.

 

OTC markets are notorious for pump and dump schemes. That is where a large investment firm or market maker buys up a large portion of a smaller company’s shares and pumps them up in the financial news ecosystem. The stock’s price rises as more and more positive news comes out  about the company and the market maker profits. The traders that get caught up late in the game risk being stuck in the stock on the downside. That can be a real problem.

 

Beyond pump and dump schemes, OTC markets are risky for new day traders because they are so unpredictable. You need to have a lot of screen time under your belt in order to be able to spot trends and capitalize on them effectively in OTC markets. The game changes so fast that only veterans with enough experience in trading can be ready for the dips and dives, twists and turns. It takes years to be able to get to that level.

 

It helps to find a day trading education site that can prepare you for that kind of trading. OTC markets require a risk management style that can be developed in classes with veteran trader and by practicing in paper trading simulators. Having access to a simulated market environment where you can trade virtual currency is a valuable situation. You can game out trades and get used to the nuances of the market without losing any actual cash.

 

That kind of experience is very valuable when it comes to start out in the day trading industry. It makes sense to learn as many different strategies as you can when you are just getting your feet wet, so you can test out different ways of making money. What you need is the ability to recognize bad traders from good ones. And there are way more bad trades in OTC markets. Being able to pick out the good ones is a skill that is developed over time. Take the time to get educated by veteran traders, get going on screen time and you will get there. 

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