We live in a society that seek instant gratification. Most people these days want to earn money the fastest way possible without thinking of the dangers and consequences to themselves or their love ones. Sad to say, that the quick money mentality has reached the stock market and has left a lot of people investing unwisely on stocks that may often be too risky to begin with. Let us learn more about Penny Stocks.
What Are Penny Stocks?
Penny stocks are common stocks that are sold for less that a dollar or, in some cases, less than five dollars for each share.Penny stocks are traded over the counter (OTC) through quotation services such as the OTCBB or the Pink Sheets. Although they are said to be "thinly traded," share volumes traded daily can be in the hundreds of millions for a sub-penny stock.As per the SEC definition, penny stock status is determined by share price, not market capitalization or listing service.
Returns From Penny Stocks
Penny stocks make it possible for the small investor to invest small amounts of money to test the waters or just play it safe. You can literally invest $100 or even less and have thousands of shares.Of course the more money you invest the more you will make but gradual profits are the key to averaging your way to penny stock wealth.Do your research very carefully and invest in penny stocks with strong fundamentals.Penny stocks provides the potential for rapid upside which may be as high as several hundred percent in just a few months.
Risks of Penny Stocks
What you should know about these stocks is that trading them may be much riskier as compared to regular stocks. After all, with such issues as these stocks having no adequate backgrounds, offer very limited information about the companies, and may often pose huge threats for scams.Investors are lured to the appeal of penny stocks due to the low price and potential for rapid upside which may be as high as several hundred percent in just few months.
1.Lack of Background
Companies that are willing to trade stocks in such small amounts are mostly those which has very little business history or may have a very negative one. These companies are either just starting out in the business or they may have experienced bankruptcy, thus they resort to selling their stocks at such low prices.
Because there isn't a lot of information available on penny stock companies, there is a very huge possibility that you might be making a bad investment. And of course, you may end up losing more money than you plan on gaining.
For most companies that offer penny stocks, not a lot of information is really available for investors to view online or elsewhere. After all, most exchanges in this market operate on the Over The Counter Bulletin Board (OTCBB), which do not really require thorough reports for public posting. Without such valuable information, it would be very difficult on the investor's part to make the right and objective trade decisions, and this could often lead to unwise guessing.
In conclusion, although there is a lot of potential for growth in very minute sized stocks, there are greater risks involved. And often times, if you are not well acquainted with the business background as well as with the necessary information on how your investment is doing, there is a huge chance for you to get scammed.
And so, if you are new to the whole stock exchange market, make sure that you decide wisely on which type of stocks to invest and do not go after what may seem easy to get you rich. Take in mind that, although penny stocks may be alluring, they may involve huge risks on your part.
Paul Hata is active in various social and community programs aimed at providing equal access to education,health and jobs to all.Paul has over 10 years experience in managing a multi-million dollar advertising company.Paul can be reached at - TradePlanets.com