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You might be wondering, "What are penny stocks?"
Well, small-cap, low-priced stocks are known as penny stocks.
Contrary to their name, penny stocks rarely cost a penny. The SEC considers a penny stock to be pretty much anything under $5. And while there are sub $5 stocks trading on big exchanges like NYSE and NASDAQ, most investors do not think of these when asked to describe a penny stock.
There are various ways on how you can earn some money from penny stocks. However, none of them is easy.
You start with the basics, and buy a stock. It is important to purchase a stock that belongs to a valuable company and then hold onto it until the price reaches the point where you can sell it for a profit.
There are many reasons companies become penny stocks. A company can go through a horrible bankruptcy and end up restructuring or getting bought out at a great value. Perhaps it can get out from under huge amounts of debt or it has a lot of inventory or capital equipment or real estate or patents or other valuable assets that are worth something to an acquirer. Holders of penny stock shares of a company with a great potential to turn itself around benefit if the company gets on track and sends the share price soaring.
What Are Penny Stocks – Notable Names and Risks
Notable penny stocks include those offered by Lithium Exploration Group (LEXG) whose market capitalization soared to over $350 million after an extensive direct mail campaign.
And of late, the price of a single penny stock by HNHI has been increasing dramatically.
The search query – what are penny stocks – has been on the rise in many search engines recently. But what people don't bother to look out for are the risks associated with penny stocks.
Actually, penny stocks are inherently risky. With their less liquidity, penny stocks are often difficult to find a buyer for. If you cannot find a buyer, you may have to lower your asking price until it is no longer profitable to sell. That is not usually a winning proposition.
Some buyers may fall victims of the pump and dump activity which is hugely unethical and quite possibly illegal where you live. The idea behind it involves creating unfounded hype for the penny stocks that this pumper already owns. Then, as his or her victims buy into the hype, the pumper drives up the price of the penny stock significantly, selling his or her shares for a relatively huge profit. Meanwhile, anyone who bought into this hype quickly loses his/her money with the upward stock momentum dropping and the stock price goes south.
Most of the time, there are no minimum standards that penny stocks have to fulfill for companies whose stocks trade on OTCBB or in the Pink Sheets exchange. No minimum standards mean that added safety cushion is not there between the sellers and the investors.
Having given you a decent outlook concerning the penny stocks, I certainly know that you can as well give a detailed outlook which can help your friend, or any other interested buyer, to satisfactorily answer the question – "What are Penny Stocks?"