Cheap Stocks can be Dangerous
When you hear the term 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 are generally high risk investments you need to take some serious precautions with.
Penny stocks aren’t really for those who have 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 may get a return and make some money. To relax and play be extremely careful and ensure 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 in high demand. These companies are sometimes mentioned on the radio and various things. You might even see glowing comments on their message boards and other mediums.
These postings are sometimes done by an individual or even an entire team and they tend to block out people who find themselves critical giving the impression that it’s a great company to obtain investors to buy their stocks. When they’ve sold the stocks they will then sell their shares causing the price tag on the penny stock to rapidly deflate.
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