What Are The Risks Of Investing In Penny Stocks?
Penny stocks offer some of the highest yield of all other stocks as well as the lowest costs
. They are known for their wild and violent swings in momentum bringing overnight riches to traders. However there is a high risk involved with small cap investing. This article will take you through the risk of penny stock investing. At the end, you will also learn what you can do to mitigate these risks.
1. Lack of ready information
Stocks in the major exchanges have great following. There is institutional research and freely available analysis. Penny stocks on the other hand have little or no following. To find information about penny stocks, you have to almost always search for it. You have to really dig to find convincing information about the firms you are considering. This is why people that push fake stock information get away with it.
2. Lack of proper regulation
Penny stock trading is not controlled by the Securities and Exchange Commission the way the major stock exchanges are controlled. This means the protection available in the other markets is not available. This gives room for a lot of sharp practices.
3. Rampant crime
Lots of financial criminals exploit the loose regulation to practice all manner of crimes. There are all types of fake stocks in the market especially those sold by overseas corporations. These stocks can come in a day and disappear overnight. They are really stocks of shell companies that go through cycles of momentum of stock price because of the individuals who trade them. These companies have no product or the demand is deceptively overrated.
4. Small corporate structure
A small company's revenue can be affected in big ways by any shifts in business. News of a major contract, product launch or discovery can make share prices soar overnight. This potential for quick growth, the biggest attraction for penny stocks can also work negatively. A piece of bad news can almost erase the share price of a micro cap company overnight.
5 Low volumes
The lower the daily trading volume of a micro cap stock, the higher the risk to the investor. This means shares when purchased might be difficult to sell.
However, despite these risks penny stock trading still remains one of the best ways to make quick turnover on your money. You can make it if you are ready to be diligent to do the required proper research and analysis choose the best stocks and follow a good trading strategy. Or you can let people that have perfected stock trading strategies help you.
If you're interested in making more money with low-risk investments whether you're a seasoned trader, looking for additional income, or a starter, you can absolutely grow your income and improve gains by checking out
Penny Stock Traders. It has resources that can dramatically increase your returns and reduce the risk of losing your cash.
Penny Stock Traders.
by: James Morre
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