Tips For The Penny Stock Investor
Penny stocks are called those stocks that aren’t traded on any of the major exchanges ( AMEX, Naz , NYSE ). They’re cheap, hopeful stocks from little corporations typically traded by an “over the counter” listing service or 1st public offerings ( IBO ) , for example ( OTCBB or Pink Sheets ) The amateur penny stock investor could find other terms used that are interchangeable with “penny stock”, they’re : microcap stocks, nano caps and small caps.
These stocks are a high-risk investment and newb penny stocks investor should be ready to lose their whole investment. The stocks are sometimes capped under $500M and are hopeful in nature particularly the ones that are traded under low volumes in “over the counter” lists. The SEC commission puts out a caution to those that would like to trade in them that “Penny stocks may trade irregularly, meaning that it might be hard to sell these shares after you own them.” to contribute to the anguish, they may also be tricky to get correct pricing per share.
Why would the noob penny stock investor find them tasty? Generally due to their low purchase costs and the capability for fast expansion that might be seen in just one or two days. They can and frequently are a “trap” to lure the amateur penny stocks investor when the stock starts to move up and rumours in chat-rooms start to multiply about their engaging movements. Its much like an angler moving a worm in the stream for the thoughtless and hungry fish just under the surface. Think about yourself as that “fish.”
The risks concerned to the start investor beside the “fish scenario”are to get a stock of limited liquidity with a background of insufficient or hopeful money reporting with always the spector of crime that’s rampant in this field. Investor beware is a good expression for the amateur in this field.
The OTC BB ( OTC notice board ) is a regulated quotation service in the U.S.A. Owned by the NASD, for stocks that aren’t mentioned on any of the major U.S. Stock exchanges. It can be tough to tell the difference between OTC shares and penny stocks. Many shares that don’t meet the capitalization necessities of the major stock exchanges finish up on the OTCBB which explains why you’ll find the stock of smaller corporations or those that are ( IBO ) being traded here including penny stocks.
Fraud and the Penny Stock
Fast expansion potential makes the area a prime target for crime as illegal pump and dump schemes, short-and-distort, and chop stocks. The newb penny stock investor must be advised that crime is rampant in the shape of mails in which stocks are purchased for dimes using Regulation S and then unlawfully sold to overseas or perhaps domestic retail investors, according to Gary Weiss of “Investors Beware”, Business Week ( 1997 ).
Summing all this up, beware the lure of fast cash offered by these stock con artists. The sole ones making any money are those that make the market and offer them for sale. If you do invest watch out, be provident and always do as much due groundwork as practical. One of the finest ideas that I’ve heard when approached by providers of these stocks is to run not walk off Invest in recognised firms that are either NDX , AMEX or NYSE. For these stocks you can mostly believe what you are reading.