- Low volume can cause enormous volatility and also at times make it tough to enter or get out of a position.
- Lack of regulatory requirements and no minimum accounting standards make penny stocks much more susceptible to manipulation and scams.
- Pump and Dump schemes in thinly traded companies: Dishonest traders buy the stocks cheap then tout the stock on bulletin boards, chat rooms, or additional method as the most recent “hot” stock.
- Consequently, they get other people to run up the stock price – then they dump their personal shares at huge profits.
To conclude, trading in penny stocks is not for everyone. It can be massively worthwhile but it is also immensely treacherous.
Previous to plunging in, study your tolerance for risk scrupulously.
If you conclude that you possess the guts to engage in it, allocate only a small amount of your available investment resources to it, at the very least until you know what you are doing.
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