Should You Buy Penny Stocks?
Should you buy penny stocks? That’s an excellent question. Let’s look at some of the pros and cons.
In the United States, a penny stock is one that trades for less than $5 per share on any 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. They have the potential to increase in value by over several hundred percent in a short time thanks to their low prices. The problem is that for the same reason, there’s a big potential for high losses.
If you buy penny stocks, you just might have a tough time selling them them off. These stocks have fewer investors interested in them, so they are not traded as often as higher-priced, popular stocks.
You’re taking a risk when you invest in these kinds of stocks, because if you are looking into a less known exchange, the stocks may not be subject to the same standards and requirements that other stocks are. This makes them less stable.
Because of their lesser-known status, penny stocks have become a huge area of income for fraudulent individuals. Many of these same people have misled investors through internet message boards and spam emails.
What they do is they encourage investors to dump huge amounts of cash into a stock that has no growth potential, then bailing out and selling their own shares as soon as the prices rise. “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.
The cheap prices might make you inclined to buy penny stocks. However, be aware of the potential pitfalls before making any investment. Know the track record of the companies you’re investing in!
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- Carlie Evie