Penny Stock Investment
Any stock that is not traded on the big three stock exchanges of the NYSE, NASDAQ, and AMEX, is considered to be a penny stock in the United States, although technically the SEC considers any stock trading under five dollars a share to be a penny stock. New investors are attracted to penny stocks due to their low price, and their appeal for potential fast and massive gains. However, such investments are very volatile often gaining or losing large percentages in just a few days.
Acquiring reliable knowledge about companies is the secret to investing. Unfortunately, information about penny stocks is hard to find and this is one reason they are so risky. Companies that are listed as penny stocks are either newly formed and have no history, or do have a history with a poor track record. Another reason they are so risky is because they are not regulated.
FREE >>>Download TradingSolutions
At most, all a penny stock company has to do is to make sure that they file with the SEC on time. In other cases, companies are not required to file with the SEC at all and thus remain unregulated. In fact, this may be the reason the company has become a penny stock, because it was listed on one of the big three exchanges, but failed to uphold its reporting requirements to the SEC.
TradingSolutions: Financial analysis and investment software that combines technical analysis with neural network and genetic algorithms.
Get your FREE download today!
In addition, a lot of the information that is available about these companies is not credible. People often think that large companies started off as penny stocks, but this is always not the case. What they are mistakenly looking it is the adjusted stock price. The adjusted stock price does not take into consideration any splits the company has. What happens here, is that people assume the stock started out as a few pennies and worked its say up into the $100 range it is now.
However, what usually happens is that the stock starts out at $20, gradually works its way up in price and splits many times in its history. The biggest risk with penny stocks is that they are used by a lot of fraudsters. Due to a lack of regulation and oversight, these stocks are used by fraudsters for “pump and dump” schemes. The fraudsters buy into the company and then promote it.
Once people start buying in, the fraudsters cash out all their stock and make a nice profit, leaving everyone else holding the bag. Ways of promotion include sending spam mail and paying off figureheads on television and radio to promote their stock. Always make sure to never to buy stocks based on spam. You should also check to see if the media contact owns the stock or is being paid by the company that they are promoting.
TradingSolutions is an advanced technical analysis trading software package. It has the ability to learn patterns from historical data, allowing you to create highly accurate trading systems that inform you when to buy and sell. This trading software effectively performs market timing for all types of financial markets, including stocks, futures and currencies (FOREX). Click one of the links above, or the banner below, to get your FREE download of TradingSolutions software.