Many people are drawn to these stocks as they can use a minor initial investment, but keep in mind that you encounter the risk of the share value falling to zilch.
Yes, there are definitely risks involved in these kinds of shares, there is also a significant prospective for tremendous profits.
Obviously, when you are attempting to pick out a penny stock to put money in in you are going to want to inquire about a few details about the business.
Just like when selecting shares of any other sort of publicly traded company, it's a good idea to investigate everything about the organization.
This relates to knowing what the organization do, the product they make, what products or services are offered, how their business plan functions and who else is involved in their industry.
One of the things that makes penny shares so likable is the fact that most of the companies offering them are rather uncomplicated.
There's a lot of of these types of stocks that are companies involved with resources - their value will rise and fall based on the price of the resource.
Penny stocks are seen as a high risk purchase, according to the Securities and Exchange Commission.
Unfortunately there's also the risk that the organization won't stick around even with proper research.
One thing to keep in mind is that the financial reporting guidelines for penny stocks aren't typically as tight as shares on bigger stock exchanges.
One type of penny stock is known as the Pink Sheets, there's almost no regulatory requirements on penny shares, no standard accounting guidelines or reporting guidelines.
Since there's low or even no regulation or standards, this renders this sort of share open to fraud and dishonest reporting.
A well known common schemes is know as a "pump and dump" - investors manipulating the price of shares to rise drastically and then sell all of their shares in one chunk leaving other people with big losses.
However, even with that said it doesn't mean you should be scared off of these shares entirely.
You can find scores of real, honest small organizations, and they have tons of potential.
Tons of businesses that are looked to as penny stocks are headed to be a success in the future.
If you are able to choose one of these businesses, your return on your purchase of stocks will be massive.
If you are able to choose companies that have potential, your payout will be sizeable.
It's possible that you drop money on many picks, however the one winning pick will offer such a sizable payoff that any previous losses won't matter.