Should Newbie Investors Invest Into Penny Stocks?
In USA, stocks which are dealt or traded for less than 5 dollars a share and are traded over the counter or in pink sheets are called penny stocks. They are known as penny shares in the UK.
Because penny stocks oftentimes explode over night they can be extremely lucrative. However, they are extremely risky as well.
Although there are a lot of regulations, fraud is still oftentimes likely to happen, because of the lack of knowledge or deeper penetration into company's data. It is difficult to determine what is the real reason for a hype or growth in the price of the stocks or what Is driving it. Nevertheless more and more people are investing in penny stocks, because they would like to make big profits.
There are numerous ways in which a penny stock can be pushed to go up drastically and in this way becomes a hot penny stock which even more people invest in. A lack of liquidity generally makes the stock a very easy target for manipulation and if a big investor can push in money on it, the prices go up and it could result in getting noticed in the bigger markets and get some media coverage. That is enough for many people to flock to buy the shares. At the peak, it will be easy for the big investor to bail out of the market with his share now at a bloated price.
As the liquidity of a company is questionable, this cannot be done always. This fact causes a lot of problems for investors. Nevertheless there are a lot of penny stocks that make it big within some years because of a strong and healthy managment. If the company profile is carefully monitored such shares can be easily picked up based some inherent clues, and taken up. The best thing to do is to start with a low capital and increase the profit over time.
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