Archive for June, 2010:
When you hear the word Penny Stocks you think stocks for a penny.
It feels right, but penny stocks are actually any stocks that trade for under five dollars or it can mean any stock that’s not traded through the big exchanges. Penny Stocks usually are high risk investments you will want to take some serious precautions with. Penny stocks penny stocks aren’t really for folks with little experience in trading stocks.
They tend to attract new traders because of their low cost, but have high potential for fraud. These stocks are usually the vehicles for schemes like pump and dump. A pump and dump scheme is when someone sells a stock for an inflated price, and then the seller dumps the overpriced shares. This causes the price to drop and the investor to potentially lose lots of money. Also since penny shares are worth so little they’re often not tracked or reported which raises the potential for fraud. These are high risk investments and should be treated as such. However, if you’re experienced in trading you can find a return and make some money. You just need to be extremely careful and make sure that the company you buy the penny stocks from is reputable. Often companies will talk about their economic growth and will claim that their stock is high demand. These companies are sometimes mentioned on the radio and some other type of things.
You might even see glowing comments on their message boards and other mediums. These postings are sometimes done by a single person or even an entire team and they tend to block out those people who are critical giving the impression that it’s a great company to get investors to buy their stocks. The moment they’ve sold the stocks they will then sell their shares causing the expense of the stock to rapidly deflate. There are several companies that are devoting themselves to tracking penny stocks so that people know which ones are fraudulent. Penny stocks are often sent through spam and these trackers can be handy in helping identify which ones to step back from. Penny stocks are commonly traded outside the major exchanges because the companies selling them are kicked out of your major ones for not meeting the minimum bid of $1 for a consecutive stretch of time.
Once this happens the stocks are usually on the OTC Bulletin Board. The NASD has been attempting to clean the Bulletin Board by requiring companies to submit quarterly and annual reports to the SEC to hold fraud rates down. The truth of the matter is that penny stocks usually are a risky if you don’t know what you’re doing and even sometimes when you do. You do not even realize you’re buying penny stocks if you opt for them at the inflated prices. Just use caution with what you do and make sure to read the company, chances are if their stock has risen rapidly recently, they is probably not very reputable.
