Is it Good to Buy Penny Stocks?
That’s a good question… should you buy penny stocks? There are pros and cons, so let’s look into them.
First of all, what is a penny stock? In the United States, it’s a stock that’s worth less than $5 per share, regardless of the market. In common conversation, however, the term can apply to any low-priced, easily manipulated stock, and it often refers to stocks sold outside one of the three major exchanges (NYSE, NASDAQ, and AMEX).
Because they’re priced so cheaply, penny stocks are a very tempting way to break into the stock market. Another reason they’re attractive is because they could dramatically increase in value in short order. But they also have a huge potential for steep losses for the same exact reason.
If you buy penny stocks, you may find that they are harder to sell than you anticipated. Because these stocks don’t have as many investors, they are usually not traded as often as the more popular and pricy stocks.
On top of that, if the stocks you’re looking into are listed on an exchange that isn’t well known, they are probably not subject to all the minimum standards and listing requirements that other stocks are held to. That means they are more unstable, volatile.
Another thing: Penny stocks are a great source of income for fraudulent individuals. This is due to the stock’s less known status. Many of these same people have misled investors through internet message boards and spam emails.
They get investors to pour huge amounts of money into a stock that has no real potential for growth, and then selling their own shares when the price rises. This scheme, called a “Pump and Dump” results in huge profits for the fraudulent, and huge losses for the naive.
You might be tempted to buy penny stocks for their great prices. But be careful: Keep in mind all the possible pitfalls before you invest any kind of money. Educate yourself on the track record of any company you want to invest in!
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- Carlie Evie
