What You Need to Know About Scams and Penny Stocks

Getting started in the penny stock world is often easier than you’d think. The problem for most people isn’t learning how to trade penny stocks; it’s figuring out how to separate the potential scams from the opportunities to make real money. Although penny stocks can be fun, lucrative and appealing in the right circumstances, they often have a bad reputation among traders thanks to their high volatility and their common connections with scam artists. The truth is that there are risks to trading any kind of stock, but penny stocks are more often connected to issues of fraud – particularly for people who choose to trade in the unregulated environments like OTC and the Pink Sheets. Here’s what you need to know about scams and penny stocks.

What Are Penny Stocks?

Let’s start simple; penny stocks are shares in the stock market that typically sell for a price lower than $5 per share. There’s a lot of massive companies which fall into the penny stock category, simply because they haven’t had a chance to build a name for themselves yet. Once, the very well-known Ford motor company was only trading for $1.87 per share. This is a good example of how high-quality companies can end up in the penny stock market.

The thing that makes penny stocks so worrisome is that while many are traded on the major exchanges like NYSE and NASDAQ, millions more also appear on smaller, riskier stock markets. These “dark” markets, as they’re known, are dangerous because they are not regulated by any financial authorities. This means that you can easily lose your money when you invest outside of the traditional stock market.

Who is Vulnerable to Penny Stock Scams?

Ultimately, while stories about penny stock scams appear in the media regularly, the truth is that most of the people who find themselves dealing with these fraudulent stocks are people who decide to take their chances and trade on the dark market. Scams are also common among people who buy a free stock pick that they hear about on social media or through a message board.

Unfortunately, it’s never a good idea to buy a stock that’s listed by a promotional company as a “free pick.” No truly high-quality business will pay for a promotor to drive their penny stock price higher – this is a sure red flag that a company is trying to scam you into a paying for shares that aren’t worth your time.

The best way to make sure that you get the most out of your penny stock investments is to avoid free stock picks and stay away from the dark markets. If you take your time and research the companies that you want to invest in, and make sure that you only spend your cash on organizations with a strong financial background and plenty of high-volume shares, then you can make sure that you’re not the next person who’s complaining about penny stock scams online. There are risks to any aspect of stock trading. The key to success is knowing how to manage the markets and protect yourself.