Penny Stock Truths

March 10th, 2010 by admin

Since the stock market crash of 2008, many have been skeptical about trading on the many global stock markets available. However, some people have understood that after a crash, there are many deals to be had on stocks. There are plenty of good deals with cheap stocks. Northgate Minerals, for example, went down to the 60-70 cent range at one point after the crash, but is now worth in excess of two dollars per share. Investors who purchased valuable mining companies like these with solid balance sheets did quite well. Other investors purchased penny stocks, and many of them have done poorly. Penny Stocks are those which are sold at only a few cents per share (or sometimes even a fraction of a cent per share), and which often trade on the Over-the-counter Bulletin Board market rather than a mainstream stock market. Penny stocks are attractive to some who wish to invest because they need only go up a few cents in order for the investor to double his money. However, the risk of penny stocks far outweighs the potential benefits. The risk of buying Penny Stocks is that, since they are traded on the OTCBB, they lack any regulatory oversight. These stocks can simply be “pump and dump” schemes, which are companies started up by individuals who have no real intention of improving the company, and who instead issue favorable press releases about their company to increase demand, and promptly sell their own shares. These companies eventually go out of business and the shareholder loses their money. For this reason, investors should avoid trading penny stocks unless they know what they are doing and are not new to the practice of stock trading

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