Penny Stocks are generally referred to as common stocks that are traded for less than five dollars a share. Penny stock is traded over the counter (or OTC). Pink Sheets, or the OTC Bulletin Board are the quotation services that trade penny stock over the counter.
Penny stocks are also being traded outside of major stock trading exchanges such as NYSE and NASDAQ, or AMEX.
Investors find it somewhat difficult to invest in penny stock, as opposed to regular stocks, because legitimate information about penny stocks is not wide spread. It is easy to manipulate penny stocks, because it is hard to find reliable information on penny stock companies.
Because penny stocks are traded below five dollars per share they are attractive to investors, and especially to inexperienced investors. Low price stock is usually perceived to have a potential for rapid growth, or for quick cash. Penny stocks are not a very good idea for a long-term investment. They lose value in a long-run. Short-term investment is probably a most suitable option for penny stocks. But it doesn’t mean that penny stock will bring you high percentage return over night. Penny stocks are considered to be high risk investments, because investors loose on it just as much as they gain on trades.
Securities Exchange Committee warns all investors that penny stocks are high risk investments and should be carefully examined before purchase. Various things can happen with penny stocks. Among them, fraud, limited liquidity, and lack of financial reporting. It might become very difficult to sell penny stock because demand for it fluctuates and is not stable.
Manipulations of stock are done easily because there is not much regulation or listing requirement compared to major markets such as NYSE, NASDAQ and AMEX. There is not much protection for shareholders. There are a lot of penny stock company insiders as well as fraudulent investors online that pretend to be unbiased stock reviewers. Confusing links, multiple websites, confusing graphs and charts, inconsistent data and much more can lead new investors to buy penny stock and take a big loss. In some cases, if a trade is done online, it can be fraudulent. Thus if you think of trading penny stock, you should consider using well established companies such as Scottrade.
Well, I do agree with that the market is cheap and it might get cheaper, but i think this is out of my control so it doesn't really matter. I think We should based on our own research to identify those bargain stocks and invest in it if it suit our own investment philosophy.
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