When thinking about venturing in penny stocks online, you should initially realize that the penny stock market is full of risks and fraud. You should become skilled at preventing scams to secure trading success and profits.
Penny Stocks Exchanges
Penny stocks in general are common stocks exchanged or traded on OTC or over-the-counter quotation services, with prices of not more than $5. Some investors label penny stocks as micro cap stocks. Companies who sell micro cap stocks have market capitalization of not more than $250 million. You must get a good grasp of these low value stocks, which are intrinsically speculative and volatile, to build your nest egg early.
The OTC quotation services where you can perform penny stocks trading online are the OTCBB or Over-the Counter Bulletin Board, and the Pink OTC Markets, otherwise known as Pink Sheets or Pink Quote. Note that these venues are not similar to NASDAQ, or NYSE, which are full stock exchanges arena.
Understanding these things is significant in making trading decisions, particularly when looking for the best penny stocks. Frequently, when stocks do not meet the requirements or standards of the major stock exchanges or when they fail to file with the Securities and Exchange Commission or SEC, they are immediately delisted and become available only through these OTC quotation services.
Therefore, the penny stocks online you come across with and trade through the OTC Markets don’t integrate the same degree of public data and confirmable financial information as stocks traded on the major exchanges. This allows them to become very susceptible to artificial manipulation, hype, and fraud.
Types of Penny Stock Schemes
- Pump and Dump – When searching for a list of penny stocks, this is the first type of stock spam that you must familiarize yourself with. The fundamental idea behind this is that a group of well-connected investors choose a comparatively ambiguous penny stock then build it up so that novice investors like you will purchase it quickly. This permits the value of the stock to be puffed up temporarily. When the penny stock picks value blows up, the party who is accountable for the hype immediately sells its stocks to lock in profits. The poor novices are left with worthless stocks that are very difficult to sell.
- Chop Stocks – This is another form of scam plot that you should become aware of. Chop stocks come into view when unscrupulous stock promoters and brokers join together to purchase ultra-low value stocks at incredibly discounted price. After which they will hard sell the stock to you at much higher cost. Regrettably, most novice investors get ensnared into this trap, leaving them exploited and heart broken due to financial loss.
These types of propagandas make it critical for someone like you to look for a skilled and very reputable broker. Even though the general rule is to stick with a stockbroker that you can afford, make sure that he has the experience and skills to obstruct these unconstructive schemes online.
Don’t get too excited making money in penny stocks online. You need to be very cautious in all your trading moves so you can stay away from people who make money by fooling unsuspecting investor like you.