Are you thinking about purchasing some penny stocks? Wait – there are some very important penny stock warning signs that you should know to better protect your money and investments. But before we discuss the things that we have to look into before we buy penny stocks, we have to briefly understand what penny stocks are.
What are penny stocks?
In general, many people believe that penny stocks are those stocks that are sold at less than $5 per share, and they are listed on the pink sheet markets or over-the-counter markets, even on NASDAQ. Penny stocks are often defined as having less than $4 million net tangible assets. The business of the companies that sell penny stocks must not have significant operating history, must not have real assets, and must not be engaged in some real business like manufacturing.
Many people opt to buy penny stocks because they find such stocks easier to own. After all, they are sold at a very low price, and owning plenty of shares is made easier and more possible even with a small amount of capital. It is important, however, to be careful in choosing penny stocks to buy. In order for the investors to ensure that they buy the best penny stocks, hiring a full service penny stock broker is a good idea, as they offer investment advice and best stock tips — however, full service brokers can be very expensive when it comes to commission and transaction fees, thus we can expect to be spending more on investment cost.
How to identify a penny stock fraud?
Penny stocks are naturally risky — of course, they are sold at a very low price without certainty of their price will raise. And since most of the companies that sell penny stocks are just starting with their businesses, there is no certainty as well that such companies will grow or become profitable. Thus, buying penny can be very dangerous. In addition to the risks that are involved with penny stock investing, there are some “penny stock scams” that investors have to avoid being a victim of. So how do we identify if a penny stock is a scam or a fraud?
There are some penny stock warning signs which we need to watch for. First, we have to be careful with high-pressure sales techniques. Investors have to understand that investments in a legitimate company which is expected to succeed is long-term. Secondly, we have to be careful with blind pools and blank checks, which means that we shall not invest in any security which we do not know how our money will be spent.
In addition, investors need to be very vigilant with mismarked trade confirmations or new account cards, even if it was just a mistake done by brokers. Wrong statements about the net worth, income, and account objectives must be carefully watched as well.
Furthermore, investors should be very careful with unauthorized transactions as well. Being alert about certain placements in account of securities that investors did not know or agree to purchase is one of the most important things to do. If a broker tries to pressure investors to purchase a stock, such investors must practice extra caution about such. Unauthorized transactions must be complained about, both verbally and in writing, and must be reported to the broker’s manager and the Securities Division, to avoid or prevent fraudulent transactions.
Now, after all this, did we scare you away from purchasing some penny stocks? Before you jump ship, you should know that ever though penny stocks are generally classified as ‘risky’, there is also great potential to make huge profits. People do it every day! Our goal is simply to help you know the penny stock warning signs so you can make better informed decisions before purchasing any stock. This will help you make better investments that’ll protect and grow your money.