What are penny stocks? Are they worth investing in? What can they do for me? If you’ve recently considered investing in penny stocks, chances are you have asked these questions.
The Securities and Exchange Commission (SEC) defines a penny stock as a stock that is under $5 a share. However, some don’t classify a share as penny stock unless it is under $3 or even $1. Penny stock also includes stock that is currently on the pink sheets or the over-the-counter bulletin board (OTCBB).
If you are considering investing in penny stocks, you should understand that it is often more risky to invest in these stocks. One of the reasons penny stocks are risky investments is that they have a lack of history. They are often newer stocks or the company is near bankruptcy, which means the corporation may not be stable. Things like lack of liquidity, no minium standards and lack of public information are also factors that make penny stocks risky investments.
Beware of Scams
Because they seem to be such an affordable and easy investment, penny stocks are used by scammers to attract victims.
One approach scammers use is advertising. They send emails or pay third-party organizations like newsletters or even radio programs to encourage you to purchase their stock. If you receive advertising emails, you should read them carefully and do some research into the stock that is being advertised.
Fact vs. Fiction
Another approach that is common among penny-stock scammers is using offshore brokers. SEC regulations allow companies to sell stock to foreign investors without registering their stocks. Scammers take advantage of this by selling highly-discounted stock to foreign investors who then sell them back to investors in the United States for a large profit. If you want a good trustworthy authority on penny stocks, you should pay attention to Tim Sykes.
There are many misconceptions about penny stocks. It can be dangerous to believe some of these falsehoods because they can cause financial harm or even ruin. Doing your homework about any investment you are considering is extremely important.
One often-repeated myth of penny stocks is that stocks that are now successful and valuable started out as penny stocks. This myth starts when people make the mistake of analyzing the “adjusted stock price.” Looking at this figure, it may seem that stocks of huge corporations started out at eight cents, but if more research is done, you can see that they in fact started out around $20.
Another fallacy about penny stocks is that since they are so cheap, there is lots of room for appreciation, so making money on them is simple. However, it is important to remember stocks can also fall in price, making them lose value quickly.
If you are considering investing in penny stocks, remember to do your research, undersand the risks and beware of scams.