Penny stocks have been around for a long time - they've been part of American investment strategies since the 19th century. That's where these stocks were named, since the modern penny stock actually costs somewhere between a dime and five dollars, not a penny. Let's have a look at the risks you incur by investing in these stocks, as well as the ways they can help investors profit.
Penny stocks are share offerings made by companies that are either too new or too small to be listed in the major exchanges. These have a potential to grow a lot for a relatively small initial investment, but they can also be part of unpleasant pump and dump schemes. Like anything else in the over the counter (OTC) market, the buyer should beware.
Choosing penny stocks reasonably means that you need to have an independent appraisal of the company's business model. Much like buying shares of any other kind of publicly traded company, it's necessary to understand everything about the company. That means knowing what they do, what they make, what products are offered, how their business model works and who their major competitors are.
One of the most appealing things about penny stocks is that the majority of businesses offering them are quite simply put together. One typical type is that of a mining company, which will only be profitable when the price of the material it mines reaches a certain level. There are also some oil exploration stocks which use this kind of valuation.
Penny stocks are rated as a high risk vehicle by the Securities and Exchange Commission. Some of the risks involved include incomplete or indirect reporting of finances, fraud, and limited liquidity. People playing using a day trading strategy, sudden demand on penny stocks can create wide ranging volatility, which also makes it hard to short sell them.
The reporting guidelines on penny stocks are a lot less strict than they are for stocks listed on the national exchanges. In fact, some stocks will just delist for a few days. In the investment type known as the Pink Sheets, there's almost no regulatory requirement on penny stocks, no minimum accounting standards or reporting guidelines.
Because these stocks aren't standardized and don't have an generally accepted requirements for accounting, they can be extremely vulnerable to being manipulated or even just plain fraud. People posing as independent observers can encourage people to run up the price, then they sell and de list the stock. This is the classic pump and dump scam.
Now, that doesn't mean you should be scared off of these stocks entirely. There are lots of real, legitimate start up companies, and they have to get going somewhere. Anyone who can pick a winner will get a handsome reward.
If you have the ability to spot companies that have promise, your payout will be huge. Even if you lose on most of your stock picks, the single winner will be such a big gain that you'll forget about the ones that didn't work.
Penny stocks are share offerings made by companies that are either too new or too small to be listed in the major exchanges. These have a potential to grow a lot for a relatively small initial investment, but they can also be part of unpleasant pump and dump schemes. Like anything else in the over the counter (OTC) market, the buyer should beware.
Choosing penny stocks reasonably means that you need to have an independent appraisal of the company's business model. Much like buying shares of any other kind of publicly traded company, it's necessary to understand everything about the company. That means knowing what they do, what they make, what products are offered, how their business model works and who their major competitors are.
One of the most appealing things about penny stocks is that the majority of businesses offering them are quite simply put together. One typical type is that of a mining company, which will only be profitable when the price of the material it mines reaches a certain level. There are also some oil exploration stocks which use this kind of valuation.
Penny stocks are rated as a high risk vehicle by the Securities and Exchange Commission. Some of the risks involved include incomplete or indirect reporting of finances, fraud, and limited liquidity. People playing using a day trading strategy, sudden demand on penny stocks can create wide ranging volatility, which also makes it hard to short sell them.
The reporting guidelines on penny stocks are a lot less strict than they are for stocks listed on the national exchanges. In fact, some stocks will just delist for a few days. In the investment type known as the Pink Sheets, there's almost no regulatory requirement on penny stocks, no minimum accounting standards or reporting guidelines.
Because these stocks aren't standardized and don't have an generally accepted requirements for accounting, they can be extremely vulnerable to being manipulated or even just plain fraud. People posing as independent observers can encourage people to run up the price, then they sell and de list the stock. This is the classic pump and dump scam.
Now, that doesn't mean you should be scared off of these stocks entirely. There are lots of real, legitimate start up companies, and they have to get going somewhere. Anyone who can pick a winner will get a handsome reward.
If you have the ability to spot companies that have promise, your payout will be huge. Even if you lose on most of your stock picks, the single winner will be such a big gain that you'll forget about the ones that didn't work.
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