Penny Stock – what is it , how to trade and why should we buy it or should we?
Also known as cent stocks in lots of countries as well, penny stocks are the most common shares that small business usually issue. They are traded at really low prices per share and in the U.S., for example, the SEC shows the penny stock to be a security that usually goes for below than 5$ per share most of the time. It also usually doesn’t list up on national exchanges and doesn’t meet any other specific criteria like other stocks do. Another example is in the U.K. where such stocks go for under £1 and are called penny shares. The trading of such costs in any stock trading marketplace always results in low market capitalization and the stocks themselves can prove to be extremely volatile and subject to manipulation by any stock seller that plays the pump and dump scheme.
As an investor, the thing you should mostly be concerned about is that most of those stocks can become target of stock promoters and manipulators and can thus mislead buyers easily for their own purposes. Being priced for only fractions of a cent they are widely used by scammers and can thus be a huge risk for any stock trader. Especially the past few years, with the evolution of online trading and bartering for stocks, it has become even easier for people to pull off scams with penny shares. The fact that personal communication devices have developed that much has only helped the scammers with those kind of schemes.
There are of course still penny shares that are sometimes worth acquiring as an investor, but numbers are becoming thinner and thinner with the threat of eventual scams growing more every day. You can basically never be sure if what you are buying is something that will actual pay off in the future and that it’s not just another scam.