How To Avoid Penny Stock Scams

How To Avoid Penny Stock Scams

Owing to their tiny share prices, penny stocks, allow online investors to purchase large numbers of shares. One of the best things about these stocks is that they do not cost a penny and are cheaper than other stocks since budding companies usually issue them and they do not possess much trading history. Moreover, penny stocks are nudged with just a few hundred bucks.

These stocks are also referred to as microcap stocks and are not relatively new for new investors. People who wish to trade penny stocks and are willing to risk a tiny part of their portfolio on them, must follow a few precautionary measures to preserve most of their trading capital.

Since penny stocks have unlimited upside potential and are inexpensive, they sound incredible in theory. This reason is why they are likely to pull a large number of investors particularly if they are looking to make instant profits.

People trade penny stocks using quotation systems such as the OTC Link LLC or OTC Bulletin Board. Penny stocks can serve as a crucial part of your unique investment strategy, and you can also trade them via several online brokers. Although investing in penny stocks should not be super risky, an investor may fall victim to a fraud in case he fails to identify a penny stock scam.

Penny Stocks

You don’t have to spend thousands of dollars to learn how to invest in a genuine penny stock system to make profits.

However, like all other investments that sound too good to be true, many fraudulent penny stock companies lure in customers who want to make it big in the penny stock business. 

Common Penny Stocks Scams

Are penny stocks a scam? It is not uncommon to come across different penny stock success stories from time to time. However, this also attracts a massive number of investors to explore all sorts of penny stocks system.

Some of these are nothing but fraudulent methods, devised by scam artists who pass themselves off as stock market analysts. In a few cases, they pose as seasoned investors who are likely to introduce you to a ‘fool-proof system’ for locating the best stocks.

What they want is to lure a customer into buying a share or getting him to pay for insignificant financial advice. Either way, it will cost you money without any gains or profits. There are hundreds of penny stock websites that demonstrate a series of trades to make an investor super-rich.

However, what they don't show the potential customer is that they began ten or more separate portfolios. They only pick the one that offered the best returns to convince investors. This feature makes them look like a stock-picking genius.

Pump and Dump Scheme

Moreover, the ‘pump and dump’ scheme is another common type of penny stock scams in which the scammers purchase a bunch of shares. Later, they inflate their value and use the internet or phone to sell them out quickly.

These fraudulent companies claim to have some inside information that the stock is going to surge. Some scammers even create a boiler room where dozens of people coax an investor to make a purchase.

The share price continues to go up until the scammer keeps pitching the stock. However, the price crashes as soon as you sell the shares because the scammer stops promoting it. It is important that you contact your state's securities regulator or the SEC immediately if a penny stock scammer has tricked you.

How to Avoid Fraudulent Penny Stocks Activity

Once you plan on investing in penny stocks, it is important that you remember the following key points.

  • Be wary of a too-good-to-be-true message or email that contains exciting information about a hot penny stock or important information regarding this type of investment. One of the most common ways to get someone subscribed is to pretend to misdial or misspelled.
  • It takes a significant time to know about penny stock investments and how it works. Remember what Peter Lynch suggests for making investments: invest in what you know. Before you make any big investments, make sure you know about the risks and consequences.
  • It is important that you get familiar with basic financial accounting before plunging into penny stock companies.
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    When penny stocks are a small part of your total investment portfolio, it greatly reduces potential risks. Investors can still boost their overall return by discovering a few gems.

Despite what you read on a multitude of websites and see on TV, penny stocks rarely offer short-term gains. Jumping in and out of stock in a short period will only make you lose your money and results in the broker's fee.

For investing in penny stocks, you just need to find great micro-cap companies that have the potential to become household brands shortly. Some people avoid penny stocks since they fear these common scams.

Although working with individual companies is risky, they also reduce the overall risk that comes with this type of investment. When you become familiar with the basic concept and rules of penny stocks, it is easy to avoid traps and scams that result in losing your valuable time and money.

What Should You Avoid When Dealing With Penny Stocks?

Never invest in stock only because its value has increased. A higher price doesn't necessarily mean that it is an ideal stock for investing. Although many websites promise to offer you instant and valuable profits, it greatly helps to be selective before hitting the buy button.

Stocs Profit

Moreover, do not expect instant or quick returns on your investments. Seasoned and expert investors recommend waiting for at least three to five years before you expect profits to pour it. 

Final Thoughts

Like any other investment opportunity, avoid investing money that you cannot afford to lose. Penny stocks are a great way to earn money, but it also involves a few risks and can land you in a scam. Make sure you only get in touch with authentic penny stocks companies to begin your penny stocks investment journey.

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