Penny Stocks News

Are Robinhood Users Making Penny Stocks Disappear?

Written by Timothy Sykes

Updated 4/17/2022 2 min read

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As the market closed on Tuesday afternoon, only three companies listed on the Nasdaq exchange had a common share stock price below $1. When the market opened on Wednesday morning, there were none.

The last three stocks to regain the $1 threshold were:

China SXT Pharmaceuticals, Inc. (NASDAQ: SXTC)
Luokung Technology Corp. (NASDAQ: LKCO)
Acasti Pharma Inc. (NASDAQ: ACST)

This increased demand for low-priced stocks follows a surge of new investors that are downloading stock trading apps like Robinhood at a record pace.

Last month, the share price of GameStop Corp. (NYSE: GME) surged during a short squeeze. The media and internet glorified a few traders, including Keith Gill, who made millions off of risky bets.

And despite the fact that the price of GME stock has since collapsed, people have been drawn to the market in record numbers in the days and weeks that followed.

Robinhood reported over 600,000 new app downloads the Friday after GME exceeded $500 per share. Compare that to the 140,000 downloads on its busiest day of the market crash in March 2020.

Data shows that the lower-priced stocks have been getting a lot more attention as new traders are coming to the market.

More Breaking News

Increased buying puts upward pressure on share prices.

Robinhood no longer releases precise popularity data, so we don’t know exactly what stocks are the most popular with its users. But it does provide a list of the 100 most popular stocks in no particular order. On Thursday morning, among the 100 most popular stocks on the app, 13 were trading under $5 and 24 under $10.

Companies with lower share prices are welcoming the new buyers. Nasdaq requires all stock listed on its exchange to maintain a minimum price of $1.

If a stock stays below $1 for 30 consecutive days, Nasdaq will begin a year-long delisting process.

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”