A little description of penny stocks included that these are the shares of small corporations that traded normally under $1.Penny stocks are very inexpensive stocks and investors can buy bundles of stocks in very less investment, but this is the great danger for both the trader and the stock issuing company. One more point to consider is that the companies in penny stock trading markets OTC-BB and pink sheets are largely unregulated. The penny stock issuing companies can voluntarily publish their financial disclosure documents through OTC Markets in cooperation with the Financial Industry Regulatory Authority (FINRA) that is the regulatory body that covers trading and issuance of stock. But there are many corporations that not want to publish their financial returns and other necessary information, which can help the investor to choose the right stock from a bundle of stocks.
Pump and Dump, A common Fraud:
The biggest danger to penny stock investors is “Pump and Dump”. This is the common fraud; the companies get services of promoters by paying them big amounts. The promoters misguide investors by investment alerts claiming the stock is hot and about to rise in price. Just the positive aspects are described in order to attract the potential investors. When the demand of stock increases, the promoters gets their share and takes their way, while the new investors lose their money.
Transaction of Reverse Mergers:
The small companies issue penny stocks and many of them go out of business and faces business failure. These companies have no Securities and Exchange Commission regularities, so it a big danger to investors to out their money in such companies. Reporting requirements are helpful for traders to analyze the position of stocks in the market. When any of such publicly trading penny stock company go out of business, , one of its assets is its legal trading shell, which it can shift to any new corporation by using a transaction, termed as reverse merger.
Lack of Liquidity:
Penny stocks are much easy to buy, but at the time of selling, sometimes you not find any buyer. These stocks are traded irregularly. Penny stocks are higher speculative stocks, so investors invest according to the price speculation. When there is no good news about price movements, there might be many days when the stock does not trade. Its better not to put all your money in penny stocks, is you can’t afford to lose your money.
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Happy Trading.
Disclaimer
Fast Moving Stock does not own any shares or plan to get a position(s) in the company(s) anytime soon. Moreover, we have not been compensated for the posting of this article/report/analysis, as this is just an opinion of our writer/contributor. Not recommandation to buy or sell any stocks Read full
