Insolvent company trading

A new trend has become anchored in the trading world: "Insolvent company trading"

This trend deals with a share that will file for bankruptcy or has already done so before it is de-listed by the stock exchange and finally only be able to trade the OTC.

The art of trading bankrupt stocks was already popular before, but we see lots of volume and new traders which try to make a quick buck out of these situations.


The latest example is the German payment processor Wirecard AG.

After a scandal over the lack of funds from the balance sheet, investors completely lost confidence in the company and the share price fell accordingly to one euro after the company announced that they may have to register for bankruptcy.

But look what happened to the stock price:


Wirecard

This kind of insolvent company trading resulted in intraday price increases of over 100 percent and reverse within minutes. Lots of volatility and huge price swings are the new normal here and is only something for experts or people with a lot of luck.


Now you might think that this is an exception, but other examples show that it is the new reality and these kind of trades are really risky. I would never recommend to try these for yourself if you haven't got the knowledge to do so.


Hertz


Chesapeake Energy


Luckin Coffee


No matter if we should find this good or bad, this information is valuable.

Cause the corona crisis isn't over yet and the end results of businesses which will become bankrupt could definitely increase over time.


This is bad for the economy and bad for the related businesses but good for that kind of short term trader who tries to make a quick buck and succeeds. And this time this is not only about the so called "big players" in the market. It's also about retail traders which try to participate on these situations and at the moment it looks like they have enough market share to move these stocks stronger than expected.