Penny Stocks and its Risks

Penny stocks are for the new investor who may have limited funds to spend. Discover that penny stocks are especially in new or up and coming companies or companies that are on their last leg and treading water. This doesn't mean that even those companies that have fallen off the big lists aren't worthy investments, all the same they have been known to pick themselves up, reinvent themselves, and find themselves back on the big lists. For the sake of this article however, penny stocks are sometimes big companies going through a downward spiral, which makes them, just like the new companies, somewhat of a risk.

Of course reason is rarely a good bedfellow for ambition or dreams and the low prices of most penny stocks it's perfectly acceptable for even the common man to have a few dreams of his own when it comes to obtaining wealth by playing the stock market game and there is a much greater thrill with penny stocks than you will find in any casino with penny slots.

Some of the common risks associated with penny stocks may not be risks one would commonly assume are related to the stock market. The thing you need to remember is that trading penny stocks isn't regulated in the manner that the major stock exchanges are regulated. This means that a large safety net that others in the stock market are protected, to some degree, by does not extend into the murky waters of penny stock trading. It is the forgotten child of oversight and investors are left to fend for themselves.

The first risk is fraud and this risk seems to be rampant in the penny stock market. You will find all kinds of fraudulent penny stocks that are heavily marketed by overseas companies that look glossy and legitimate on the Internet, in investment magazines, and through many brochures, and even several carefully crafted and well written press releases, newsletters, and emails. The problem is that there is no product or the demand is deceptively overrated and the stocks are essentially junk stocks worth nothing, if they exist at all. The "businesses" in question take the money, dump, and run never to be heard from again. Unfortunately this is quite common and many of the "companies" that perpetrate the frauds are located overseas. This is the biggest risk though certainly not the only risk

The other risk is that the companies that are listing penny stocks are often smaller businesses that are building or larger businesses that have fallen off the major exchanges radar for one reason or another and are either going through desperate restructuring or failing all together. Both pose very real risks but if you choose to put your faith in the right new business or old business that is getting its act together the proper way you can find amazing profits on the other end of the roller coaster ride.

The other risks that are involved when trading penny stocks are the lack of financial reporting. Corporations and companies that trade in the major stock exchanges are required to release their financial information and account to their stockholders. The same doesn't hold true for penny stocks. There is no accountability and very little public information. This means you have to really dig to find out credible information about the companies you are considering and are left going with your gut more often than not rather than relying on legitimate information that will be beneficial in your investment decisions.

Penny stocks are very lucrative to those who manage to pull off the investments and come out ahead. But it can be hard to make huge profits in these investments.

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