Should You Buy Penny Stocks?

That’s a good question… should you buy penny stocks? Why don’t we weigh 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. 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).

It’s very tempting to get into the stock market by buying penny stocks, seeing as how they’re so cheap. Their low prices mean they have the potential for increases of several hundred percent over a few days. 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 are not traded nearly as often as the more popular and higher-priced stocks. They have fewer investors.

In addition, if the particular stocks you’re looking at are listed on a lesser-known exchange, they may not be subject to the same listing requirements or minimum standards that other stocks are. This makes them less stable.

Another thing: Penny stocks are a great source of income for fraudulent individuals. This is due to the stock’s less known status. Many investors have been misled by these people through spam emails and internet message boards.

This is how their game works: They get investors to tie up a lot of their money into a stock with little or no potential for growth. When the stock’s price rises, they sell off their own shares. This scheme, called a “Pump and Dump” results in huge profits for the fraudulent, and huge losses for the naive.

You might be tempted to buy penny stocks for their great prices. However, be aware of the potential pitfalls before making any investment. Know the track record of the companies you’re investing in!

Visit How to Buy Stocks and get all the free help you need in discovering How to Trade Stocks, Stock Market Trends and so much more!

- Carlie Evie

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