Is It Wise to Buy Penny Stocks?
That's a good question... should you buy penny stocks? Let's look at some of the pros and cons.
A penny stock in the United States is a stock in any market that you can trade for less than $5 per share. In common conversation, however, the term can apply to any low-priced, easily manipulated stock, and it often refers to stocks sold outside one of the three major exchanges (NYSE, NASDAQ, and AMEX).
Penny stocks, because they are priced so low, are a tempting way to get into the stock market. 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 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.
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. This means that they aren't as stable.
Because of their lesser-known status, penny stocks have become a huge area of income for fraudulent individuals. Many investors have been misled by these people through spam emails and internet message boards.
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. This scheme, called a "Pump and Dump" results in huge profits for the fraudulent, and huge losses for the naive.
The cheap prices might make you inclined to buy penny stocks. But be careful: Keep in mind all the possible pitfalls before you invest any kind of money.
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Source: www.articlecity.com
