Penny Stocks Can Be Very Profitable But Equally Risky!

Investing in Penny Stocks can make for a wild ride. It can be hugely rewarding but it is also immensely risky.

Also constant vigilance is necessary to avoid falling prey to fraud. Trading Penny Stocks is not for the faint of heart.

Penny stocks are common stocks that trades for less than five dollars. In fact, many of them are traded for mere pennies and even less per share.

Many institutions disallow trading in stocks that are below $5 in price. As a result, this contributes to a lack of liquidity which adds to the volatility of those Stocks.

Ordinarily, Penny Stocks are not traded on the regular exchanges - NYSE, NASDAQ, or AMEX - and are not subject to the same regulatory or reporting requirements as stocks traded on those exchanges.

However, it is important to note a particular distinction to the statement above. Many sub $5 dollar stocks do trade on the regular exchanges and are subject to the rigorous regulatory and reporting requirements of those exchanges as are all stocks traded on those exchanges.

Also if a stock trades below $1 on the regular exchanges for too long, they run the risk of been de-listed from those exchanges and would have to re-list on the Over The Counter (OTC) Bulletin Board or the Pink Sheets.

True Penny Stocks are traded through quotation services such as the Bulletin Board or the Pink Sheets (recognizable with a .PK suffix) .

The Attraction Of Penny Stocks To Many Investors

Despite the fact that there is an obvious appeal for the potential of rapid and astronomical profit from trading penny stocks, there is a not so attractive side to consider. A large percentage of stocks listed on the Pink Sheets or the OTCBB are manipulated and traded fraudulently, so Buyers Beware.

Disadvantages Of Penny Stocks

Listed below are some of the risks involved including causes of manipulation