When I hear the term penny stocks it makes me think of those ‘for entertainment only’ gambling machines in the bars. You play 25 lines for a couple of cents per line and with any luck you can actually walk away with a pretty good gain. But gambling with something that I can’t watch with my own eyes makes me a little nervous. I got stung a number of years ago with a huge investment and have been overly cautious ever since. I looked into these penny stocks to see what all the excitement was about and found some rather discouraging news.
Is It Worth the Risk?
To buy penny stocks are actually more risky than your basic stock. The company’s low value allows the price to be easily manipulated. Say you have a $200,000,000,000 company; one individual cannot easily manipulate it, but in the case of a $15,000,000 company; small trading groups and many different individuals can be trading with 20 to 25% of the company. Because of selling and buying surges the value of the company itself can fluctuate. This can make inexperienced investors panic, thereby changing their selling and buying activity. It’s a shady business and sometimes skips over shady and goes right to scam.
Is Anything Safe Anymore From Scammers?
Inexperienced investors and stock traders are prime candidates for penny stock trading scams. A popular scam called ‘pump and dump’ is executed by an advertising campaign pumping up a certain penny stock by convincing loss of people to buy in. This signals investors that (ordinarily) this would make a good trade. This is when the scammers quickly dump the stock into the buying frenzy. Suddenly the marketing campaign is done, the scammers are richer (and gone) and the price crumples.
Stock trading is dangerous enough, think twice before you enter into something that is obviously too tempting to resist for today’s high tech scammers. This isn’t to say that all penny stocks are scams. There are numerous legit investments available. Use common sense and remember the old adage- if it sounds to good to be true, it usually is.