The Penny Stocks

By Author: andrewethan5
Total Articles: 110
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Penny Stocks trade at low price and market capitalization, commonly outside of the key market exchanges. Such stocks are highly attractive to the investors as they have high return even they involve high risk, lack of liquidity, small capitalization, large bid-ask spreads and limited following and disclosure.

People may disagree while defining this term, for some people it is any stock that sells for pennies, some have conception like any share that trades for under $5 and some people believe that such stocks sell outside the major exchanges like NASDAQ, AMEX or NYSE. One thing that negates such ideas is the existence of some very large companies, based on market capitalization, trade below $5 and there are a large number of very small companies that are inclined to trade for $5 or more. Typically a penny stock is termed for a very small company with very illiquid and speculative shares. These companies have fewer filing and regulatory standards and generally subject to limited listing requirements.

Penny Stocks lure many investors due to their low price and professed potential for hasty growth. Among all Penny ...
... Stocks, the OTCBB and the Pink Sheets are the riskiest. Sudden hike or fall in the demand and supply of these Penny Stocks make them highly volatile and vulnerable, resulting in impulsive transitions in the financial status of the investor.
Penny Stocks and micro-cap stocks being low-priced shares have been found being promoted obstinately as a part of illegal pump and dumps. You may find gleaming press release on a web-page of some companies about their financial health, innovation or new product, newsletters offering unprejudiced suggestions to sell out your shares before the go down. If influenced by such deceptive information, unwitting investors buy stocks in droves and give spike to the prices of these shares. When sellers stop hyping these shares, the prices nose-dive and ultimately the investor has to go to dog. Fraudsters make the investors ignorant by hiding the information and use this ignorance of the investors as cat's paw to grind their own axe.

Other penny stock scams comprise of junk faxes and spam e-mails that flaunt comical and counterfeit claims, message boards brimming with Buy Now!!!, warped newsletters that promote a stock for a fee, paid posters, ambiguous and fake press releases or boiler rooms full of cold-callers targeting the inexperienced, foreign buyers and elders all in stab to drive up the share price while insiders sell.

A more recent penny stock fraud that is extremely blatant tries to find their prey overseas. Structured crime gangs in Asia and Eastern Europe acquire a large number of shares waning penny stock. After that, using logins and passwords to electronic brokerages like E*Trade, stolen at a public computer terminals in some public place like some hotel, they use such hijacked accounts to buy up the shares, while at the same time they sell their own shares, exhausting the customer accounts and leaving their victims with thousands of worthless shares of Penny Stocks. So it's a great job to deal with these Penny Stocks. Although very risky, offering high return, Penny Stocks should be very carefully understood through their financial statement. This doesn't discourage the buying of Penny Stocks but advises for a careful investment decision.

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