• What are Penny Stocks?

    January 18, 2011 // Comments Off on What are Penny Stocks?

    Any stock which is traded outside of the major stock exchanges is considered a penny stock, as well as those trading on the major exchanges but are worth less than $1.00 per share.  They are common shares of small public companies, and are considered to be highly speculative investments. They are most often traded over the counter, through the OTCBB and Pink Sheets. Penny stocks are considered large risks because they are not liquid and have large bid-ask spreads. There is also small capitalization with limited following and disclosure.

    Investors should be highly wary of investing in penny stocks through the internet. It is easy to create a scam to increase interest in a certain penny stock, causing investors to make purchases of the stocks at an inflated value, allowing the scammer to unload his shares at a higher, inflated, and incorrect price, leaving the shareholders behind with stocks worth much less than they paid. Because penny stock companies have low liquidity, it can be difficult to sell shares.

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