Penny Stocks High-Risk Investments
Saturday, February 20, 2010
Penny stocks are shares of small companies that are usually sold for under $5 and sold over the counter (OTC), on bulletin board or pink sheets. Although some people only consider a stock a penny stock if it is bought for less than $1. Whatever one you go with the end result is very affordable stocks. These stocks are a bit more difficult because they are sold in less numbers than regular stocks.
Although investing in penny stocks is a great way to turn a little bit of money in a small fortune it does come with its own set of risks. Brokerage firms are required to inform investors of the risks that will be involved with this process. Since penny stocks are shares of small companies it can be difficult to find out information about the companies. There are also concerns when the stock falls in price, because the prices are so low even the smallest drop can be devastating. A share that was purchased for 10cents and falls 1 cent is a 10% loss. However the potential of a big profit is also much higher.
Another risk that penny stocks suffer from is the high potential of fraud. Since the price of shares are decided by the supply and demand rule inflation in prices are something that you have to look out for. Because the prices are so low it is possible for people to buy stocks a large number of stocks for a low price to increase the value and when it goes up because other people start to but it they sell right away to make an instant profit. There are also those who spread false rumors promoting their stocks in order to sell their stocks.
Penny stocks are a good way to make some money but it is not a for sure thing and thats what you have to keep in mind. The potential of turning a profit is great but this is a high-risk investment. Before getting involved with trading and selling penny stocks be sure you know what the process involves.
-M Petrone
http://www.RefinancingCondo.com
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