Investment: What Are Penny Stocks

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Penny stocks are different than regular stocks. Penny stocks are lower in price and can be sold for a higher price and they’re trade outside of the major exchanges like NYSE, NASDAQ, and AMEX. There’re more fraud risk with penny stocks than any other type of stocks. The loss is high in the long run for penny stocks. Penny stocks are stocks from very small companies on the market with caps in the low range. You can invest in stocks if you’re an experienced trader and you can make some money doing it if you know how to manage it well. Penny stocks are in the small caps or nano caps sector of the classification. They are from very small companies.

Penny stocks can be bought at a very low price and then it can grow very quickly in a short amount of time like in a few days. It can grow as high as several hundred percents in a few days. Penny stocks come with very high risk such as limited liquidity, fraud and no financial reporting. These are the warning signs of a bad investment. There could be penny stocks in the market that are fraudulent and the company doesn’t exist.

The SEC does warn new investors to be mindful about penny stocks. The volatility rate is high in penny stocks due to changes in supply and demand. It’s hard to sell penny stock because people might not want to buy it due to the nature of the stock and you can lose a lot this way. There may be a lack of people that are willing to buy your penny stocks if you want to sell it. A penny stock company has very little requirement in order to be put on the OTCBB. They only need to file with the SEC on time unlike all the other requirements that the NASDAQ or NYSE need to have. Penny stocks do come with many risks unlike regular stocks.

Source: http://en.wikipedia.org/wiki/Penny_stock

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