Should you buy penny stocks? That’s an excellent question. There are pros and cons, so let’s look into them.
First of all, what is a penny stock? In the United States, it’s a stock that’s worth less than $5 per share, regardless of the market. On the other hand, the term can also apply to any lower priced and easily manipulated stock. It will often refer to a stock sold outside NYSE, NASDAQ, and MEX, the three major stock exchanges.
It’s very tempting to get into the stock market by buying penny stocks, seeing as how they’re so cheap. Their low prices mean they have the potential for increases of several hundred percent over a few days. However, for the exact same reason, they have a huge potential for quick loss.
If you buy penny stocks, you may find that they are harder to sell than you anticipated. Because these stocks don’t have as many investors, they are usually not traded as often as the more popular and pricy stocks.
On top of that, if the stocks you’re looking into are listed on an exchange that isn’t well known, they are probably not subject to all the minimum standards and listing requirements that other stocks are held to. That means they are more unstable, volatile.
Another thing: Penny stocks are a great source of income for fraudulent individuals. This is due to the stock’s less known status. Many investors have been misled by these people through spam emails and internet message boards.
They get investors to pour huge amounts of money into a stock that has no real potential for growth, and then selling their own shares when the price rises. “Pump and Dump” is the name of this infamous scheme. It has emptied the pockets of many a naive investor and lined the wallets of the fraudulent.
You might be tempted to buy penny stocks for their great prices. But before you invest any kind of money, be aware of all the potential pitfalls. Know the track record of the companies you’re investing in!
Visit How to Buy Stocks and get all the free help you need in discovering How to Trade Stocks, Best Stocks to Buy and so much more!
- Carlie Evie
Highlights 
December 30th, 2007 