Buying Penny Stocks – Background and Precautions

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Thinking of Buying Penny Stocks? The dream of many speculative investors is to buy a ground floor investment for pennies a share and ride a wave of momentum until it peaks. to then sell it for a nice profit. Inspired by the stories of people who profited from this stock trading strategy, these people find their way to the alluring, but infamous, penny stocks.

Penny stocks are usually just low-priced stocks that trade on major Over the Counter Bulletin Board (OTCBB) exchanges and on Pink Sheets. The Securities and Exchange Commission (SEC) considers any trading of stocks under $ 5 to be a dime. The benefits of buying penny stocks are generally speculative in nature, although some of them are well-run companies with good potential for future growth.

OTCBB stocks are required to file timely financial reports with the SEC. This makes them as easy to run a financial analysis as most of the other companies listed on any of the major exchanges, but there are usually a number of factors that make buying stocks low. risky investment prices in addition to having readily available financial reports.

Companies trading on the pink sheets are not required to file financial statements with the SEC. This makes a full financial analysis difficult or nearly impossible at times. Many of these companies do not have a track record of consistently good performance or no track record at all. This can be due to things like being newly formed or bad management which has led to serious financial problems.

Buying stocks at low prices on the OTCBB and Pink Sheets could potentially open the door for brokers exhibiting questionable or even fraudulent behavior (even more so than stocks traded on major exchanges). The initial public offering (IPO) of a penny stock could be due to the efforts of a fast-talking broker trying to get as much money as possible from interested investors. In addition, a business could be almost worthless and is thrown out on the public by the owners.

The internet is teeming with e-mails, newsletters and mass message boards from companies and brokers trying to inform the recipient of the latest 'hot stock' secret which will bring in 250%, 500% or even 1000% if he buys quickly. These are usually penny stocks that could be on the brink of infamy if they haven't already. The broker may be ready to opt out at the earliest opportunity available to him. These are just a few of the reasons why an investor should be careful when considering including these stocks in their stock trading strategy.

Penny's stock companies can vary widely, from very conspicuously structured companies to more loosely organized one-person operations. The same can be said of the amount of information available to the public to assess them. This makes it difficult to find investment gems to include in your stock trading strategy. Investors should do a little investigative work to gain enough knowledge and confidence before considering buying penny stocks.


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