| Most people think of the major stock exchanges | | | | just as drastically and equally fast. Those who are |
| when trading stocks comes to mind. The New York | | | | inexperienced investors would do well to avoid penny |
| Stock Exchange (NYSE), the National Association of | | | | stocks until they have a better understanding of how |
| Securities Dealers Automated Quotations (NASDAQ), | | | | things work. It is also important to note that because of |
| and the American Stock Exchange (AMEX) are | | | | the relatively low 'worth' of the companies that are |
| among those that first come to mind. A penny stock is | | | | often listed on the OCTBB or Pink Sheets they are |
| a low ticket security for companies that are valued at | | | | often considered questionable investments. Some of |
| under five hundred million dollars and often trade in low | | | | these companies have such a limited financial history |
| volumes. These stocks also trade on 'Over the | | | | that no accurate determination of their actual value |
| Counter' exchanges such as the OTCBB or Pink | | | | can be made. Many of these companies are either |
| Sheets. | | | | very new or dangerously close to bankruptcy. |
| The very fact that penny stocks trade at such low | | | | There is also a strong potential for fraud with some |
| volumes increases the risks involved in investing in | | | | buyers artificially 'enhancing' or driving the costs by |
| them. The Securities and Exchange Commission urges | | | | buying large amounts of stocks and raising the |
| potential investors in penny stocks to be aware of the | | | | perceived value of essentially worthless stocks. Most |
| fact that the low trading volume of these stocks make | | | | investors who fall for this loose many when it comes |
| it likely that in times of needs buyers will be rare if not | | | | time to sell. |
| impossible to find. Finding accurate quotes for pries is | | | | It is important to remember that not all of these |
| also difficult which increases the possibility of the | | | | companies are frauds and many of them have a |
| investor losing his entire investment. | | | | great deal of potential. Some are new businesses that |
| Despite the risks involved, penny stocks are often | | | | are working hard towards their goal of earning a spot |
| attractive investments to investors for various | | | | on the larger exchanges. Do your research in order to |
| reasons. If you are new to investing and looking for the | | | | decrease your risks of landing with a declining or |
| chance to return a high yield for a relatively low | | | | dishonest company. Investors are often convinced that |
| investment you are likely to come across some penny | | | | one good investment can make them a nice tidy profit. |
| stocks. The attraction often lies in the fact that at such | | | | While this is true it is better to invest in a company that |
| low prices any changes are often measured by the | | | | is showing slow and steady growth than one you are |
| hundreds of percent this means that your investment | | | | hoping will sky rocket over night. Take the time and do |
| can literally double in one or two days time. | | | | your research rather than gambling with your |
| On the other hand, the price of penny stocks can drop | | | | investment. |