Day trading is a pursuit that is best left to natural risk takers. You do not want to be a hardcore conservative with money and start to get into day trading. There is not to gain if you are not willing to risk. But there are some levels of risk that need to be avoided if you are to make it as a novice day trader. So when you begin to go down the path of day trading education, you need to avoid OTC markets until you can really get good.
OTC markets are over the counter exchanges, where small companies, that are not listed on the major exchanges, like the NYSE and NASDAQ, find a home. The smaller market caps and share prices make these companies seem attractive for an aspiring day trader looking to make a profit, but one must be very careful. These companies are much less transparent than the big boys. The financial disclosure rules on OTC markets are much less stringent than on other larger exchanges.
What does that mean for newbie day traders? Well, that means that many companies on the OTC markets are potentially subject to pump and dump schemes. Those work like this: when market makers buy up a majority of shares of a certain company and then employ the financial media and other avenues to promote the company and enhance the vale of the stock. That means that the share price rises and the hidden market maker then begins to sell off their large inventory of shares at a significant profit, which causes a drop in share price.
It is not fun to be caught up in a pump and dump scheme. That is where you can lose a lot of money on a single trade. Most new day traders are not in a position to lose tons and tons of money. It is not advisable to start to trade on the OTC markets when you first start out on the day trading circuit. You need more experience and more screen time to be able to make it in the OTC markets.
How do you get the requisite screen time? Well, you start with a day trading education that cannot be beat. You find a site run by veteran traders that are ready to share their knowledge and bring new day traders along to make a real dent in the education space. You can learn techniques and strategies that are sufficient to make a profit on day trades. Then you get into a paper trading simulator.
That is where you trade virtual currency in a simulator that looks and feels just like the real stock market. The speed and look of the interface are just like when you are trading for real. But you get a bank of fake money that you can use to make trades and risk without risking real, cold, hard cash. You learn by doing. That is one of the best ways to get good at day trading before you actually are risking your savings.
Still, after you step into the real market you want to spend lots of time getting your druthers before getting into OTC markets. That is where the real expert traders can make a profit. But that takes years to get to that level.
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.