Many new investors, men and women alike, who are new to trading penny stocks think that penny stocks are the logical selection. Why? Because the word penny indicates that the investment is little enough that they won’t need to risk a lot to make a lot of money.
But thats definitely not the way it is. The truth is that investors, no matter whether they are newbies or pros, need to be very careful. It is correct that penny stocks may not cost a lot upfront in the form of cash in hand, but it could cost you a lot if the company’s stock that you’re trading with collapses.
Penny Stocks Are A High Risk Investment
Although a lot of people engage in stock activities, penny stocks can be categorized as a high risk investment. There are quite a number of risks that are involved with penny stocks
Just like any other investment, trading penny stocks, just like any other investment type, requires every investor to look into a company’s monetary history and expected future earnings as well.
Penny Stock Brokerage Companies
In case you get assistamce from a brokerage firm to help you trading penny stocks, these brokerage companies have to disclose the risks employing a document that tells the customer precisely what the risks are prior to takign the customers money.
Penny Stock Risks
One big risk when trading penny stocks is that penny stocks are not traded that often unlike any other Penny stocks kinds of higher-priced stocks. So there is a chance that you are being stuck with penny stocks once you own them. And due to the fact that they’re not traded often, the pricing you’re seeing can be inaccurate or completely out of date. Most penny stocks are traded in the over the-counter (OTC) market, as opposed to the national securities exchanges such as the New York Stock Exchange, the American Stock Exchange, and the Midwest Stock Exchange.
However, the biggest risk with investing in penny stocks is the hype that goes along with it and the fact that you can find several so called gurus all over the internet telling you that you can easily make a lot of money fast. I am sure you have already received on of those spam mails telling you that you can get rich overnight trading penny stocks without any risks envolved.
Penny Stock Manipulation
Another common practice is that some scam artists buy a lot of certain penny stocks and then offer them to investors at a higher value than what they’ll be worth once the artificially inflated demand is gone. Of course, not all lowpriced stocks are the subject of fraud. Abuses generally occur when highly speculative stocks are sold by brokerage firms specializing in penny stocks and using manipulative marketing techniques.
Due to the fact that you can start investing in penny stocks with a low initial investment, some brokers even break the rules and charge a lot more for their mark-up commissions. Be careful and make sure you are not getting overcharged!
But there is another tactic unscrupulous brokers use: They simply refuse an investors request to trade the penny stocks in for cash. If this happens you’re stuck without being able to cash them out
Nevertheless it should be noted that most brokerage firms operate on a fair basis. Just make sure the brokerage company of your choice is reputable and is handling everything with your best interest and minimizing the risks involved with penny stock investing. Alternatively you could trade penny stocks yourself and not use a brokerage company at all. By doing this you will save the fees. in case you want to start trading penny stocks yourself there are two guides I highly recommend: The Penny Stock Prophet. and Penny Stock Psychics