Crazy Penny Stock Risks

| August 27, 2014

market diceThe headline screamed at me about a big winner.  Make Money Fast… Don’t miss out… get it now…

I’ve heard it all, but I clicked on it anyway.

It was another pump and dump penny stock scam.  I could tell the second I read it.

How did I know?

Simple, I skipped the headline, I skipped the body of the article, and I skipped the fancy graphics and charts and pictures.  I simply read the footnotes.

That’s where you uncover the truth.

This was a promotion and the promoter was being paid big bucks to hype the stock.

Scams like that are easy to spot… but trading penny stocks and understanding the risks behind trading penny stocks can be difficult.

The penny stock world is the Wild West of investing.  You have great companies who’ve fallen on tough times.  You have others that are just starting to grow… and creating new and exciting businesses.

And you have the scammers and scoundrels… guys who are out there just to take your money.

So why are penny stocks so risky?

Even if you sidestep the scammers, you still are faced with some major problems.

First, there’s often very little information out there.

Some penny stock companies file documents with the SEC or post them to their site… but many don’t.  So you have no idea what their business looks like.

And once you get off the major exchanges, the standards fall quickly.

The big exchanges have minimum capital requirements and sizes… not so for the penny stock market!

To add to the fire, many of these companies are brand new, which adds a whole new level of risk.

Finally, you have liquidity.

With such limited information, there’s limited trading in these stocks.  So volumes are thin and market makers can take advantage of it.  The opportunity for manipulation is high.

There are a number of crazy penny stock risks out there, and you’ve got to protect yourself from every angle.

Don’t get me wrong… investing in small companies can be a great way to invest and make money… but you’ve got to understand the risks.

Profitably Yours,

Penny Stock Research

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Category: Investing in Penny Stocks

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