The main thing new traders need to know about OTC markets is to stay way at all costs. Over the counter stocks are ripe for manipulation and if you do not know how to look out for the signs and read the trends, you can be in for trouble.
Day trading is always going to be fraught with risk. You cannot run away and hide from the risk inherent in financial markets. But you can learn to manage it. One of the keys to managing risk is running from unsustainable markets and those prone to fraud and manipulation. That describes OTC markets to a T.
The main risk associated with these markets is the lack of decent information about these companies. The smaller exchanges that house OTC stocks are much less stringent about financial disclosure than the big boys like the New York Stock Exchange. And information is like gold to traders. The less information that you have, the less you are able to be an actionable determination about the health of a particular stock or company. And that makes it hard to predict movement.
The day traders that rely on technical analysis and use overall trends to figure out where stocks are going can do better in these types of markets. When you are looking at the short term and not investing in quality for the long term, you can get by without knowing the makeup of the management team. But to become good at technical indicators and how they can help you trade takes a long time. It takes a lot of screentime.
Screentime is key to day trades. Most vets say it takes upwards of 2 or 3 years to get to a real, sustainable level of profit as a day trader. You want to be able to manage your risk effectively and keep your big home run swings to a minimum. It is all about pricing your risk appropriately and learning how to keep your losses to a minimum.
Being able to find a day trading education site with a paper trading operation will give you the necessary experience to start to think about OTC markets. When you are able to trade virtual currency and essentially practice trading in real-time market conditions without risking real cash, you are going to learn a lot. And you are going to avoid catastrophic losses that wipe you out before you even get going.
A common problem with OTC markets is encountering stocks that are very thinly traded. That means that the bid-ask spreads are so large that it is very hard to make any trades that result in profits. The gap is just too large. Sometimes a stock has to double in price in order for a trade to break even, That is not a recipe for trading success.
Veteran traders can make a living by dipping into OTC stocks. If you are a novice trader without much screen time under your belt, your best bet is to employ less risky strategies until you feel comfortable enough to trade intelligently.
