What Are Penny Stocks?
Penny stocks are low-priced shares of small companies. Not on major exchanges, they trade over-the-counter through quotation services like OTC Bulletin Board or OTC Markets Group.
High Risk, High Reward
While offering potential for substantial gains due to price volatility, penny stocks are risky with less liquidity, limited information availability, and less regulatory oversight.
Famous Penny Stocks Success
Companies like Ford and Xerox were once penny stocks. They exemplify success stories, transitioning from trading for pennies to becoming industry giants.
The Pump and Dump Scheme
Penny stocks are susceptible to 'pump and dump' scams, where promoters inflate stock prices through misleading statements, then sell their shares at a peak.
Researching Penny Stocks
Reliable information on penny stocks can be scarce. Investors should scrutinize company fundamentals, financials, and market positions before investing.
Regulatory Bodies
The SEC regulates penny stocks under the Securities Exchange Act of 1934, enforcing requirements like broker-dealer registration and detailed customer documentation.
Technological Impact
Advances in technology have made trading penny stocks more accessible for retail investors, though this access can also increase the risk of fraud.
Where do penny stocks typically trade?
Major stock exchanges
Over-the-counter markets
Forex trading platforms
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