Securities sold by smaller new companies are known as Penny Stocks. They are usually sold to gather capital for the company’s expansion, basic operations and even for the initiation of business. As the name suggests, they retail for a very small amount which is often less than five dollars and it can be even just a fraction of a cent.
Investment in penny stocks always involves risks and the large investment firms simply refuse to deal with penny stocks in the first place. Statistical reports reveal that over 70{5b0579ddad123e8826b0f99aaf2548fba6b6d6310808b95d99d67897c25a7935} of the investors end up on the wrong side of profit by investing in penny stocks. There is a complementary problem too, a good number of penny stockbrokers have been found to have been engaged in deceitful and corrupt business practices. This has further led the investors to part with their hard earned money. As the buying is cheap, people get lured into buying these penny stocks paying little attention to all the prospective insecurities lurking in the back ground. You need to have a good number of winning stocks to get hold of a considerable profit and incredible money making is really rare.
Research on the brokerage firms should make you careful.
More often than not, you will find the company resorting to hard selling techniques with a promise of insider information and making unreasonable claims regarding their penny stocks. They always present their scheme to be unreasonably tempting. A thorough research will surely reveal that majority of these brokerage firms are in a legal mesh due to complaints from peeved past clients.
It has been often seen that the brokers and the brokerage firms manipulate the prices of the penny stocks. They increase the prices and begin to sell huge amount of the penny stocks so as to create an illusion of demand. There is a substantial and a dramatic drop in the price of the same stocks once the company has sold its stocks. This results in the investor’s investment as almost futile. In fact, the investor should be prepared to lose his entire investment when he decides to invest in penny stocks.
Their being inexpensive happens to be the principle attraction and buyers end up buying literally thousands of penny stock shares. They are even found to borrow capital in order to invest in these highly volatile securities. They pile up more than 5{5b0579ddad123e8826b0f99aaf2548fba6b6d6310808b95d99d67897c25a7935} to 10{5b0579ddad123e8826b0f99aaf2548fba6b6d6310808b95d99d67897c25a7935} of their overall investment portfolio; and this is against the expert advice.
