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The risks involved in investment in penny stocks are:
The company might go bankrupt and may even disappear from exchange
If the price of the company’s stock is extremely low valued, so much so that it is not even a dollar, it might be a real cause of worry. The company will drop down to the sink together with the lot of your investment baggage.
The penny brokerage firms being dishonest
Firms are found to charge markup without the investors consent. If an investor wants to sell a rapidly dropping stock, they enforce their influence on the investor’s buying or selling by absenting themselves from the process. This is unjust and illegal. Many firms have been charged with legal notices on this account. But then you cannot buy the penny stocks from a regular broker, since mostly they are sold over-the-counter and many penny stocks do not also appear alongside other stocks in the newspaper. You therefore require the aid of a penny brokerage firm for buying and selling your stocks. So, utmost caution must be exercised on deciding on the person or the organization with whom the investor decides to trade with. But even that does not guarantee security. There are complete possibilities that an investor might be overcharged, maneuvered or plain swindled.
It is difficult for the investor to gather correct and proper information about the penny stocks
The companies which offer penny stocks are mostly new in the market and some are not even completely established. They might be selling stocks simply to commence their business. So, detailed information regarding such penny stocks and the respective companies are not accessible to the investors easily. The investors have no other option but to completely rely on the penny brokerage firms in order to obtain the present worth and the volume information regarding the penny stock. These firms offer information on the penny stocks that they offer. This entails that there is no single reliable and impartial source of information on the entire lot of penny stocks floating in the stock market . The investor has the option of solely depending on a brokerage firm to obtain even a list of penny stocks available. And of course, this extra information is not free of charge.
Investors get intrigued at the probability of getting massive returns even with a negligible initial investment. But after they do bring in some quick preliminary profits, thus raising the hopes, the disappearance of the company is equally quick, leaving the hapless investor scampering for support.
