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An Introduction to Penny Stocks
I'm sure you have heard of the United States Stock Exchange as well as may be New York Stock Exchange (NYSE), American Stock Exchange (Amex), as well as NASDAQ. But have you heard of penny stocks? What are they and why are they not as popular or as widely talked about not to mention as widely traded as the other stocks? To help you learn more of penny stocks and their benefits and disadvantages, I prepared a short discussion of penny stocks.
In the United States, penny stock is a kind of stock that is being bought and sold for a very low price, not more than $5 per share. Unlike major stocks from blue chip corporations that are usually traded in the major stock exchanges such as NYSE and Amex, penny stocks are traded over the counter through the services of Pink Sheets or Over the Counter Bulletin Boards (OTCBB). Most stock traders often belittle penny stocks and even find penny stock pejorative. But regardless of what other people say, penny stocks are being traded by millions in a daily basis. The United States Securities and Exchange Commission (SEC) defines penny stock as low-priced, speculative security of a very small company. Regardless of whether a stock is traded on major stock exchanges, it is deemed to be a penny stock if it is being sold at a very low price. Penny stcoks have also been called to be small caps, microcap stock, and nano caps.
Though many are attracted to trade penny stocks because of its low share price and the possibility of big growth, other look at it with disdain. One of the reasons why penny stocks have been badly looked upon is because they are considered high risk investment. They are high risk investment because they belong to small companies that are not very liquid, lacks financial regulation or auditing by major government agencies and are very prone to fraud.
Because penny stocks have limited liquidity,their stock prices can sharply change by increasing rapidly or crashing suddenly without any warning or reason. Penny stocks can also be easily controlled and manipulated by third parties, the corporation's management, even the market maker. Its low liquidity often also results in difficulty to find buyers of penny stocks.
Another objection to trading penny stocks is that the Pink Sheets and OTCBB have minimal requirements for listing. There are no auditing standards, no notification when change of ownership of the stock happens, or any notification at all that there will be major changes in the corporation, making penny stockholders vulnerable to any sudden change in the corporation. Also, many 'concerned persons' that post messages or tips on the internet on possible penny stock performance turn out to be people that only want to defraud others or may be even insiders in the corporation.
Knowing about penny stocks and understanding how they work is the first step to prevent from being defrauded and losing money. The stock market is a great place to earn big but it is also an unsafe place where vultures tend to prey on the weak and the ignorant. Be informed and protect your investments. I hope this little exposition helped you in taking precautions with penny stocks.
In the United States, penny stock is a kind of stock that is being bought and sold for a very low price, not more than $5 per share. Unlike major stocks from blue chip corporations that are usually traded in the major stock exchanges such as NYSE and Amex, penny stocks are traded over the counter through the services of Pink Sheets or Over the Counter Bulletin Boards (OTCBB). Most stock traders often belittle penny stocks and even find penny stock pejorative. But regardless of what other people say, penny stocks are being traded by millions in a daily basis. The United States Securities and Exchange Commission (SEC) defines penny stock as low-priced, speculative security of a very small company. Regardless of whether a stock is traded on major stock exchanges, it is deemed to be a penny stock if it is being sold at a very low price. Penny stcoks have also been called to be small caps, microcap stock, and nano caps.
Though many are attracted to trade penny stocks because of its low share price and the possibility of big growth, other look at it with disdain. One of the reasons why penny stocks have been badly looked upon is because they are considered high risk investment. They are high risk investment because they belong to small companies that are not very liquid, lacks financial regulation or auditing by major government agencies and are very prone to fraud.
Because penny stocks have limited liquidity,their stock prices can sharply change by increasing rapidly or crashing suddenly without any warning or reason. Penny stocks can also be easily controlled and manipulated by third parties, the corporation's management, even the market maker. Its low liquidity often also results in difficulty to find buyers of penny stocks.
Another objection to trading penny stocks is that the Pink Sheets and OTCBB have minimal requirements for listing. There are no auditing standards, no notification when change of ownership of the stock happens, or any notification at all that there will be major changes in the corporation, making penny stockholders vulnerable to any sudden change in the corporation. Also, many 'concerned persons' that post messages or tips on the internet on possible penny stock performance turn out to be people that only want to defraud others or may be even insiders in the corporation.
Knowing about penny stocks and understanding how they work is the first step to prevent from being defrauded and losing money. The stock market is a great place to earn big but it is also an unsafe place where vultures tend to prey on the weak and the ignorant. Be informed and protect your investments. I hope this little exposition helped you in taking precautions with penny stocks.
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