Penny stocks are usually not listed at the major stock exchanges like the New York Stock Exchange (NYSE) or the NASDAQ because they don't meet the listing requirements. Listed stocks must have a minimum number of shareholders, minimum assets and file financial reports regularly. Also, they are under the supervision of the Securities and Exchange Commission or SEC.
Usually traded on the OTCBB or the Pink Sheets are penny stocks. The OTCBB (OTC Bulletin Board) is an electronic quotation system for over-the-counter securities that are not listed with one of the national stock exchanges. Financial reports should be filed to the SEC by the companies and this is the only requirements. The company will otherwise be removed from the OTCBB listing and when this happens, the stock can only be quoted on the Pink Sheets. The Pink Sheets activities are not supervised or regulated by the SEC.
If the company has less than $10 million in total assets or less than 500 shareholders in total then no filings must be done at all.
Because of these reasons, penny stocks are wide open to scams and manipulation. The stock price is usually far below $5 and market capitalization is very small as the companies itself are very small. The lack of reporting requirements can make it difficult to find verified information about the company, its financial situation and outlook.
Many fraudsters take advantage of this and publish misleading information to manipulate the stock price. Generally low is the trading volume and this is because of low number of shareholders and lack or public interest. On the share price, a few buy or sell orders can have a dramatic effect.
The biggest advantage of penny or micro-cap stocks is the low liquidity. Within a few days, a listed stock can almost never move several hundred percent but a penny stock can do that easily. Because of the low share price, acquiring a big amount of shares with a small amount of money is possible. On the performance, little price increases or decreases can have a big impact.
Playing a field for experienced investors are penny stocks but low stock prices and limited capital requirements often attract novice traders. Penny stocks are high risk investments. It's possible that many companies would go bankrupt and won't succeed. Therefore, the shares will then end up as worthless.
Assets can be in development stage for months or even years before you can expect any revenues and there are a lot of penny stock companies that have no or very limited working capital. Be aware that you probably can't sell your shares for days or weeks or only at a big discount because of the limited liquidity.
Usually traded on the OTCBB or the Pink Sheets are penny stocks. The OTCBB (OTC Bulletin Board) is an electronic quotation system for over-the-counter securities that are not listed with one of the national stock exchanges. Financial reports should be filed to the SEC by the companies and this is the only requirements. The company will otherwise be removed from the OTCBB listing and when this happens, the stock can only be quoted on the Pink Sheets. The Pink Sheets activities are not supervised or regulated by the SEC.
If the company has less than $10 million in total assets or less than 500 shareholders in total then no filings must be done at all.
Because of these reasons, penny stocks are wide open to scams and manipulation. The stock price is usually far below $5 and market capitalization is very small as the companies itself are very small. The lack of reporting requirements can make it difficult to find verified information about the company, its financial situation and outlook.
Many fraudsters take advantage of this and publish misleading information to manipulate the stock price. Generally low is the trading volume and this is because of low number of shareholders and lack or public interest. On the share price, a few buy or sell orders can have a dramatic effect.
The biggest advantage of penny or micro-cap stocks is the low liquidity. Within a few days, a listed stock can almost never move several hundred percent but a penny stock can do that easily. Because of the low share price, acquiring a big amount of shares with a small amount of money is possible. On the performance, little price increases or decreases can have a big impact.
Playing a field for experienced investors are penny stocks but low stock prices and limited capital requirements often attract novice traders. Penny stocks are high risk investments. It's possible that many companies would go bankrupt and won't succeed. Therefore, the shares will then end up as worthless.
Assets can be in development stage for months or even years before you can expect any revenues and there are a lot of penny stock companies that have no or very limited working capital. Be aware that you probably can't sell your shares for days or weeks or only at a big discount because of the limited liquidity.
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