Why Penny Stocks Are High Risk Investments?

In the past few months, a number of financial sector stocks were thrown into penny stocks realm and even bigger banks declared bankruptcy. Taking an unprecedented action of banning short sales SEC called for a short cover on financial sector stocks that have taken a beating by the shorts.

These penny stocks have, often been considered as high risk investments because of the following reasons.

1. Generally, penny stock companies are new start-ups lacking in information and management. And there is no doubt that financial sector companies suffer from the same lack of transparency. The methods are too complicated for any layman to analyze. So, one can rely on the banks when they are in a conflict with each other. But there are less chances for it.

2. Because the interest of the founders of these stocks is aligned with the rest of the share holders, the penny stock company founders cannot sell their shares for a quick profit at the detriment of other shareholders. So, it is obvious that fund managers hold the large volume of these stocks as blocks thereby impairing the return on these stocks to themselves. And moreover, the CEO's of the companies barely have any stock in their portfolios.

3. As we all know, penny stocks are often sold through spam email or off-shore brokers. Because most of the CEO's have offshore accounts, they may be no more honest or dishonest than the operators of stock companies.

By being exemplified by the financial sector both traditional penny stock startups and the fallen, have the potential for growth as well as for fraud.

Cash requirements, short sellers and image problems blight both. The only difference is that the typical startup penny stock company is vilified whereas on the other hand, the fallen companies seek shelter from government and SEC.

The advantages of low price, high inside ownership, the absences of the ability to short and of derivative manipulations come along with these penny stocks. They have more comparative transparency as compared to other stocks. By the choice of a right promoter, one can easily come across the disadvantage of low visibility.

Every one believes in investing in well chosen and well researched stocks which can provide a superior return to ones investments, particularly in mainstream equities. To evaluate a company’s worth in traditional sense also means to give equal importance to the stock promoters.

Important Facts about Penny Stocks That New Investor Must Know

Before you invest in penny stocks it is essential for you to know a clear-cut knowledge. You may know that these are stocks that frequently trade for less than five dollars per share. Therefore there is a great demand for these stocks. The disadvantage to penny stocks is that investors find difficulty in getting true information on stocks while researching as the majority of information is from scam companies or pump and dump newsletters. Therefore you need a carefully consideration and thoroughly research of the company. Hence you can go for subscribing to a trustworthy newsletter that will help you to make investing your money in penny stocks much straightforward and less stressful.

If you want to make good profits you should be cautious of which companies scam their subscribers or investors with which newsletters are pump and dump versus which ones you can trust. Another disintegrating feature of investing in these stocks is their limited liquidity and fraud risk. Hence we can’t deny significance of a Stock Professional and/or newsletter as they are main source for accurate information and reliable recommendations.

As an experienced trader, I must say that before investing into penny stocks, you must ensure whether this is the accurate time or you must await the right hit. You should consider the possible ups and downs that the stock market may face. You should also take into consideration your affordability capacity of loosing in the bet. I mean you should be prepared for loosing the money as there is no certainty. Don’t invest that money that you can’t afford to loose. But if you suppose you can bear loss in investments then you are welcome to the trade.

It is vital to remember while trading in stocks that it is not always right that the stock you choose will let you make money. The basic thing is to remember is gain knowledge regarding these stocks. And for that you are required to do a little research. You can take the help of experienced traders. Subscribing to penny stock trading websites is more beneficial as they will inform about potential stock picks and alerts. Thus when the right time comes for investing in these penny stocks, you may make most of it with these fast moving stocks.

Factors to Be Considered Before Investing In Penny Stocks

Trading with penny stocks is never as simple as that is thought of. But a careful study, on the part of an investor can really help him to get best stocks for him which will fetch high return on investments. But before investing in any kind of stocks, the following points should be considered.

The first thing to be considered before investing in any stock is the financial position of the company. If the assets of the company exceed its liabilities, then it is a positive indication calling for investment. Even if the asset does not equal the liabilities and yet there is an expecting merger, then also you can invest in these stocks as these may give you high return in course of time.
The next thing to be considered while investing in these stocks is the history of the board of directors. One must make sure that the board of directors of the company has the capacity to command the standard of cortege.

Before investing your money in these stocks, you should consider the kind of competition the stocks in which you have planned to invest are going to face. If they face less competition, then it is wise to invest in them.

You must obtain the reports regarding the performance of the company before investing in it. If you are interested in buying a stock, which formerly was a deluxe but now have become a formal stock, then you can check the annual and the quarterly reports of the company.

The next step of successfully dealing with these stocks is to cut down the losses. Sometimes, it happens like this that you keep holding a stock for a long period expecting the big time and the big time is never hit. So, it is wise to let the stock go if it causes no loss. Because in the big game of stock trading only the big moves keep to your long term trading profits. One must be mentally prepared to let down the stock go if it does not make any loss.

The last thing which plays the most vital role in the whole game is your broker tributes. You should listen to the advice of your broker and make your investments only in those penny stocks which are recommended by your broker. Because the broker is paid the commission for his service, he gives you the right picks on these stocks.

If you do your basic experiments before buying, then these penny stocks can be very helpful in multiplying your fortunes.