When people hear the term “Penny stocks”, it refers to shares of companies that are valued at extremely low values. They have high return potential and your initial purchase may be quite small, but you run the risk of the organization going bankrupt and you losing your investment. While these types of stocks carry some risk, there is also a remarkable possibility of huge gains.
If you’re trying to select a penny stock to invest in, you’ll want to know a few things about the company. Just like buying shares of any other type of publicly traded organization, it’s a good idea to understand everything about the company. It’s about understanding what the organization does, what product it makes, what products it offers, how its business plan works, and who its main competitors are.
It is rare for companies that issue these types of stocks to have organizations that are difficult to understand – they are probably simple to understand and analyze. A typical type of penny share is a resource organization that profits when the cost of the resource it extracts exceeds a certain level. There are also oil exploration stocks which are valued in the same way.
According to the SEC, penny stocks are considered a high-risk vehicle. Naturally, there is also the risk that the company will not survive even with enough research.
Reporting guidelines on penny stocks are much less demanding than they are for stocks found on national exchanges. One kind of penny stock is called the Pink Sheets, there are virtually no penny share regulatory standards, no minimum accounting guidelines or reporting guidelines.
As there is little to no regulation or standards, this makes these types of stocks open to fraud and manipulation. One of the most common schemes is called “pumping and dumping” – here there are individuals who manipulate the price of shares to rise dramatically, then sell all their shares in one transaction and leave other investors with big losses.
However, we don’t want to scare you! Penny stocks have their risks but also hold great potential for big gains. You can find dozens of real, healthy small businesses, and they have to start somewhere. Tons of organizations considered penny stocks are destined to be very successful in the near future. People who can choose a valuable penny stock will get a great reward.
If you can select organizations that have a promising future, your profits will be enormous. Even if you experience a loss on most of your stock picks under a penny, the only gain will be a gain so large that you forget about all the stocks that lost value.
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