All Penny Stocks Investment Risk

2007-03-22 16:46:53

( Business )



All penny stocks refer to stocks traded outside the major exchanges. The Securities and Exchange Commission (SEC) describes all penny stocks as low-priced shares and is traded by very small companies. Though sometimes it could be traded in major trading markets such as NYSE or NASDAQ, penny stocks are primarily determined by a low share price. The cheap pricing of shares of all penny stocks usually lures investors to trade in this kind of stock. But what they don’t know is that penny stock investing is often high-risk and sometimes fraudulent.

All penny stocks are high risk investments and often times lack consistent liquidity. This means that trading and investing in penny stocks are not very dynamic. Penny stocks will not trade a large number of shares per day and thus it does not change its share value from time to time. This lack of liquidity is often times manipulated by some third parties. At the same time penny stock prices may rise and fall at a drastic manner making it very risky for penny stock investors and penny stock brokers.

Since penny stocks do not make it in major stock market listings because of their failure to meet the minimum standards, they are reenlisted in Over-the-Counter-Bulletin-Boards or OTCBB. OTCBB is often referred to as trading on the pink sheets. They have minimal regulatory requirements, no minimum accounting standards, no proper reporting of financial viability of the company and other aspects that are meant to protect investors. Because of this all penny stocks are easily subjected to fraud.

The mode of operations in fraudulent activities involve penny stocks brokers that offers and sells shares that are guaranteed to be the latest market hot stock. These are usually partnered with press releases or penny stock news promoting the said product and company. You are then convinced to buy a lot of shares before the price goes up. While on the other hand, insiders sells their stock and you are left with worthless all penny stocks.


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