Making a pretty penny out of penny stocks

Not all people have enough amount of money for equity investments. However, it should not prevent anyone trading at stock markets. You still can buy and sell stocks and turn an honest penny. Consider penny stocks.

What are penny stocks?

Penny stocks got their name because of relatively low price, which is typically less than $ 5.00. The low price makes penny stocks so attractive to individual investors who usually do not have sufficient funds to build a portfolio of the most expensive shares issued by large companies. Some penny stocks grow in price significantly, bringing their owners incredible profits, but there are cases when the companies issuing penny stocks turn out to be low-profit or even go bankrupt.
Some of the most successful companies started as penny stocks companies. The share price of such companies as Mylan Labs (MYL), Fortescue Metals Group (FMG), originally was well below five dollars, and now it is relatively high (though not a blue chip) and stable. There are companies that started small but it hit big and noted a remarkable increase in the stock price.

Penny stocks may grow in price and bring profits.
Penny stocks may grow in price and bring profits.

Rules to avoid risks at the penny stock markets

Penny stock companies are also known as small-cap companies. Small-cap stands for small-capitalization. These are companies with dollar capitalization less than $50 million dollars. This is the reason why their shares are traded for less than five dollars. But how can one choose these penny stock companies for investment? What are the risks? Since you are playing at the stock market there is always a certain level of risk involved. However, you can minimize the risk, following these simple rules:

1. Make inquiries. When choosing a company for investment, it is important to know if it can offer good prospects for the future. Check its economic background paying attention at each economic event; examine its vision and plans for the future development. This way you can reduce the risk of being a victim of a fraud.

2. Start small. It is better to start with small investment. Remember that you still get some experience from this type of shares. In this case cautiousness is not cowardice, but necessary preventive measure.

3. Follow the trends. Try to follow current market news to understand the common trends. Currently, the shares of IT and environmentally responsible enterprises are nice choice to invest to the future. You can focus on these sectors and keep yourself up to date with the news of these industries.
When you help these small companies, it is cannot be regarded as speculation. There is certain social responsibility that appears if you think that these small companies are really good in their sphere and have promising future. You may find that their products may be solutions to some persistent world issues. Though the profit may be small, do not forget that investing does not always means profit, but always means a game. Benefit is benefit no matter how we look at it. Do not lose courage, you may lose a few dollars, but, at the end of the day, you played the game. Who knows, you may make a fortune supporting losers.

Penny stocks
Fraudsters always make money by deceiving those who lack experience

The business and finance articles are filled with the information about the penny stocks, as one of the most popular investments. Penny stocks are traded with a relatively thin price (usually 5$-10$. The problem of the penny stocks is that they often become the targets of manipulators running a risk of such microcap stock fraud as pump and dump. This form of the fraud is about inflation the price through false statements which allow selling the stock for the higher price. Today it is much easier for fraudsters to cheat, as the Internet offers an easier way for pulling the fast ones.

How does it work?

Those who are interested in a stock market research have already heard about this unimaginative but very tricky scheme. Some scam companies buy stocks, which are not in the high demand, spending on them very little money. Then they start sending emails that contain the idea that penny stocks are a great money investment. To these letters they usually add fake business stories which play the part of some kind of advertisement. They tell about the establishing of the gold stock company describing what a great profit it is. In fact, such companies do very well when their trusting preys start buying the stocks wasting a huge sum of money.

It is obvious that no benefit in such shady transaction is expected, so there is use thinking everything over before you start anything

How not to become a victim?

  • Do not trust unfamiliar companies, especially if you cannot find out any information about them in the Internet. Even if it sounds like a profitable investment, it will bring you nothing but a disappointment.
  • Find where these stocks come from. Thinly traded stocks only appear on the bulletin boards, which are the least reliable of all.
  • Look for more information on their site to find out about the company that started motivating you to buy the stocks from them. Check whether there have ever been any complaints, and how long the company exists.
  • Use your skepticism. The propositions will definitely sound too tempting, but it is worth thinking it over to realize that there are no easy ways for making money.

Some sources offer to use this scheme as a way for making money, which not only criminal but very risky, as this fraud has been attracting attention of the law-enforcement agencies for a long time.