In the USA, penny stocks refer to common or petty stocks that trades for less than five dollars and that are traded over the counter.
Penny are said to be thinly traded but actually the share volume traded daily can amount up to hundreds of millions for a sub-penny stock.
It is said that stocks can easily be manipulated and hence it is also difficult to find out legitimate information about penny stock companies.
In the US financial market, commonly, stocks refer to any stock trading outside the major stock exchanges.
In the UK, however, the same stocks are commonly referred to as penny shares and refer to shares of small cap companies with a market capitalization of less than 100 million pounds.
In the UK, the penny shares are even covered by statutory regulatory risk warning issued by the Financial Services Authority.
Penny stocks are usually very attractive to investors due to their low price and promised potential of rapid growth and hence quick profits.
Penny stocks are capable of giving good returns provided you choose the correct ones.
But in the long term, stocks carry the danger of losing all of their value and hence can result in major losses.
Stock can therefore be considered a high-risk investment because of their lack of liquidity, large bid-ask spreads, small capitalization, and limited following and disclosure.
Penny stocks often trade through the OTCBB and pink sheets.
Penny stocks carry the grave risk of potential stock fraud.
These fraudulent practices get triggered when some company's website features some glowing press releases about some brand new attractive product being released into the market.
Unbiased newsletters then take these claims to new highs when they recommend or tout the company shares as the latest hot stock.
Messages in chat rooms or bulletin boards then lure small time investors to buy the stocks quickly or to sell the stock the stocks before the prices go down.
This flurry of market activity creates a high demand for the company stocks and pumps up the prices.
But then the fraudsters behind the whole game sell off their stocks at peak prices and as a result the prices plummet and these unwitting investors lose their money substantially.
These kinds of multiple penny stock fraud cases have occurred repeatedly in the recent past.
There are thousands of companies with moderate market caps.
These companies usually have small operations and more risks.
They trade at fraction of the price of their larger counterparts and earn the label of penny stocks for themselves.
People often invest in penny stocks with the belief that these companies will eventually evolve into big firms.
We don't often see many value investors spend time and effort with penny stocks.
Penny stock company might in all possibility show good returns over the years if properly managed but then it is difficult to get full disclosure and the rules that apply to penny stock companies are really relaxed.
These companies do not have the same standard as their bigger counterparts and less frequently required to file or register with Securities and Exchange Commission (SEC).
By and large, the attempts to regulate stocks have been thwarted.
Their low prices have time and again made them the target of manipulation.
The Internet has opened up a whole new media of cheating more investors through stocks.
Therefore, in order to be safe and to protect yourself from scams, it is advisable to steer clear of stocks.
Thus it can be concluded stocks are a risky proposition on account of the fact that there's lack of information to the public from credible sources and so there cannot be informed decisions due to this lack of information.
Moreover, the stock companies need not adhere to any basic minimum standards and hence can never be the benchmarks or provide safety cushions to investors.
These companies are usually newly formed ones and hence do not have any history and hence it gets difficult to base your researches due to lack of historical data to fall upon.
Last but not the least, these shares have very low liquidity and hence can be easily susceptible to manipulations by fraudsters.
Penny are said to be thinly traded but actually the share volume traded daily can amount up to hundreds of millions for a sub-penny stock.
It is said that stocks can easily be manipulated and hence it is also difficult to find out legitimate information about penny stock companies.
In the US financial market, commonly, stocks refer to any stock trading outside the major stock exchanges.
In the UK, however, the same stocks are commonly referred to as penny shares and refer to shares of small cap companies with a market capitalization of less than 100 million pounds.
In the UK, the penny shares are even covered by statutory regulatory risk warning issued by the Financial Services Authority.
Penny stocks are usually very attractive to investors due to their low price and promised potential of rapid growth and hence quick profits.
Penny stocks are capable of giving good returns provided you choose the correct ones.
But in the long term, stocks carry the danger of losing all of their value and hence can result in major losses.
Stock can therefore be considered a high-risk investment because of their lack of liquidity, large bid-ask spreads, small capitalization, and limited following and disclosure.
Penny stocks often trade through the OTCBB and pink sheets.
Penny stocks carry the grave risk of potential stock fraud.
These fraudulent practices get triggered when some company's website features some glowing press releases about some brand new attractive product being released into the market.
Unbiased newsletters then take these claims to new highs when they recommend or tout the company shares as the latest hot stock.
Messages in chat rooms or bulletin boards then lure small time investors to buy the stocks quickly or to sell the stock the stocks before the prices go down.
This flurry of market activity creates a high demand for the company stocks and pumps up the prices.
But then the fraudsters behind the whole game sell off their stocks at peak prices and as a result the prices plummet and these unwitting investors lose their money substantially.
These kinds of multiple penny stock fraud cases have occurred repeatedly in the recent past.
There are thousands of companies with moderate market caps.
These companies usually have small operations and more risks.
They trade at fraction of the price of their larger counterparts and earn the label of penny stocks for themselves.
People often invest in penny stocks with the belief that these companies will eventually evolve into big firms.
We don't often see many value investors spend time and effort with penny stocks.
Penny stock company might in all possibility show good returns over the years if properly managed but then it is difficult to get full disclosure and the rules that apply to penny stock companies are really relaxed.
These companies do not have the same standard as their bigger counterparts and less frequently required to file or register with Securities and Exchange Commission (SEC).
By and large, the attempts to regulate stocks have been thwarted.
Their low prices have time and again made them the target of manipulation.
The Internet has opened up a whole new media of cheating more investors through stocks.
Therefore, in order to be safe and to protect yourself from scams, it is advisable to steer clear of stocks.
Thus it can be concluded stocks are a risky proposition on account of the fact that there's lack of information to the public from credible sources and so there cannot be informed decisions due to this lack of information.
Moreover, the stock companies need not adhere to any basic minimum standards and hence can never be the benchmarks or provide safety cushions to investors.
These companies are usually newly formed ones and hence do not have any history and hence it gets difficult to base your researches due to lack of historical data to fall upon.
Last but not the least, these shares have very low liquidity and hence can be easily susceptible to manipulations by fraudsters.