Penny Stocks: Popular Wicked Schemes to Avoid

Making easy money is really not possible in this world. If you find something to make out easy money, remember there must be some scam artist attached to it. It is surely going to be a risky bet.

Penny stocks have the potential to prove huge and quick gains, but it comes be a high risk proposition to your investment. These stocks are also prone to scams as these stocks are out of the scope of regulations of SEC and most of them are traded on pink sheets.

There are lots of scam artist playing into the market to make money by cheating the small investors. Below are popular scams associated with penny stocks trade:

Penny Stocks: Popular Wicked Schemes to Avoid

  1. Scam Spam: The most popular variation of pump and dump scheme scam is Scam Spam. The penny stock prices are artificially inflated from lower levels just for purpose of trapping the small investors. It is prominently done through false and misleading statements on media, free newsletters, emails and SMS etc. later they are sold or rather dumped at higher prices to investors.read more information about penny stocks myths by clicking here
  2. The Short Scheme: This is very cleverly done by the scammer. The fraudster heavily short sell the stock, making small investor feel it’s not worth holding this stock. People dump their holding and fraudster quickly buys all the shares and ultimately pumps up the stock with positive hypes. This is done where the fraudster knows some good news in cooking into the business or may be positive about company growth in future.
  3. Fake News: This is another attribute to popular pump and dump scheme. The promoters of these penny stock companies are also misleading by giving fake press releases on popular TV news channels, newspapers and on websites. Fake positive news is released to mislead the masses to buy that particular stock and artificially increase the stock price.

Penny Stocks: Points of Distinction

Penny Stocks are low priced traded stocks. They are different from other category stocks in many contexts. The other category stocks being like small cap or blue chip stocks. The points of distinctions are as follows:

  1. Stock Price: The major difference between the penny and other category stocks is the market price. As name suggest, penny stocks are very low priced stocks, trading below $5 per share. These penny stocks companies are very small sized companies compared to other category companies.
  2. Risk: Penny Stocks are very risky trades for investors as compared to trading in other category stocks like small cap and blue chip stocks. Penny Stocks are low traded volume stocks with high price volatility. They even have a risk of being de listed from the exchange.Penny Stocks: Points of Distinction
  3. Rules of SEC: Unlike blue chip and other big company stocks, most of the penny Stocks are not traded on any important exchange, rather on pink sheets. Being traded on pink sheets, they are out of the scope of rules of SEC.
  4. Market canalization: The penny stocks are small company stocks so as there market capitalization. These stocks don’t have huge capital floating on to the exchange for trading on exchange as that of big and big chip stocks.
  5. Scams: The penny stocks are always on radar of the fraudsters, so are more to scams and hence a trap for the small investors. These are easily prone to scams because they are outside the scope of SEC, with no strict rules and regulations and non-transparency.
  6. Information Available: Unlike blue chip and small cap stocks, the penny stocks are not popular stocks. The information regarding its financials, press releases are not easily assessable on TV news channels, internet and newspaper etc. Investors have to work hard to get news on penny stocks.