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Friday, January 20, 2012

What Most People Don't Know About Penny Stocks

What most people do not know about penny stock is the fact that they have generated a soiled reputation. While some of them are great investments others are not. It can be difficult to tell the good stocks from the bad stocks. Investors should weigh the risk and decide if this is the right investment for their needs

Penny Stocks are generally classified as any stock with a value under $5 per share. This is appealing to many investors looking to make it big. Some Penny Stock can be purchased for less than $1. Even though, most people have struck it big with these low budget stocks some people have lost quite a bit of money.

As with any investments there are always risks involved. The lack of information associated with Penny Stocks makes them questionable. Unlike other stocks like gold, silver or apple where information is widely publicized, this is not the case with Penny Stock. In fact, most of the information available about this stock is not from reliable sources.

Many of the stocks are fairly new and have no trading history. Investors are left in the dark as to whether or not they are great investments or if they are approaching a losing streak. Since they have no minimum standards this may be good for investor, since this acts like a safety net and benchmark for both investors and companies.

Investors should also be aware of the possibility of not being able to sell their Penny Stocks because of low liquidity. Finding a buyer could prove to be difficult if not impossible. This leaves the door open for traders to purchase the stocks at a lower price if the owner is forced to lower the price. This is where price manipulation and mistrust comes in among investors, buyers and traders.

What many investors will do is hype up the purchase of Penny Stocks and sells them at an attractive price. This process is known as pump and dump; it seems to work well for new or unsuspecting individuals who are new to trading stocks and looking for a bargain. Penny Stocks attracts the attention of offshore brokers who buys them and resells them back to their original purchaser at an highly inflated price.

Even though, Penny Stocks are low value, low liquidity and risky, there are some stocks that are trustworthy and can really pay off well. Investors need to seek more information about the stock they are planning to invest in.

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