Penny Stock Scam

Is there any thing called Penny Stock Scam. The simple answer is YES. Then what is Penny Stock Scam?  How Penny Stock Scams are made up? 

Penny stock is a common stock that trades for less than five dollars a share and are traded over the counter (OTC) through quotation services such as the OTC Bulletin Board or the Pink Sheets.  These are traded outside of the major stock exchanges (NYSE, NASDAQ, or AMEX). Legitimate information on penny stock companies can be difficult to find and a stock can be easily manipulated.

SEC warns that penny stocks are high risk investments and new investors should be aware of the risks involved. These risks include limited liquidity, lack of financial reporting, and fraud.

Essentially they are making use of the technology to make a Penny Stock Scam. Internet is the major source of Penny Stock Scam.  Millions of emails are send each day explaining unrealistic things about these stocks.  Internet is very fast; news can spread like fire through the internet.    They pump the price of the share and force innocent people to buy these worthless share.  You will see share price falling flat on the ground next day.   This is called “bump and dump”.

Many Internet users have been exposed to e-mail spam promoting penny stocks. According to a study conducted at Oxford,[17] 15% of all spam was related to penny stock fraud. According to the study, “People who responded to the ‘pump and dump’ scam lost 8% of their investment in two days. Conversely, the spammers who buy low-priced stock before sending the e-mails, typically see a return of between 4.9% and 6% when they sell.”

However there are real penny stocks, which can give you profit with in a short periods of time.  Do not shy away from investing in penny stock.  There is always room to make plenty of money in trading penny stock.

Do not make any fast decision on penny stock.  Do your research carefully.  Always make an educated and well informed decision. Penny stocks are dangerous and inherently risky, unless you understand the risk involved with penny stocks never invest in any stocks.