Are Penny Stocks Dangerous? Information On Pink Sheet Stocks

Are Penny Stocks Dangerous? Information On Pink Sheet Stocks

Are penny stocks dangerous

Penny Stocks are defined as common shares of a small public company that have a value of less than $5.00. Because of its small value they are often targeted to manipulate the price. For example, a person may purchase a huge amount of shares and release faulty information. This may cause the penny stock to rise in price drastically when it shouldn’t have and the scammer may sell his shares, causing the price to plummet.

This is why before any kind of investment is made in a penny stock, it is important to go through technical and also calculative research concerning the entire performance of the company. Success in penny stocks is purely based on research and technical indicators. With the correct research and the right companies, these kinds of penny stocks include less risk and are better suited to move in the investors favor. Thus, in order to know if penny stocks dangerous it is important to know the benefits that these kinds of stocks offer:


Penny Stocks generally are known for their cheap price. These kinds of stocks can usually be purchased in a smaller exchange for a very small amount of cash thus not affecting the buyers that much financially.

Lower amount of risk

Risk and stocks go hand in hand but that doesn’t prevent people from investing in the stock market. Regardless of what most people say, if you are investing in penny stocks you are often incurring less risk. This obviously is not true if you are trading on margin, but considering the cost of penny stocks, there is a lot less capital to lose if you diversify correctly and don’t dump too much money into one position.

Easily accessible

To the people who are interested in purchasing penny stocks, they can easily search the internet in order to get all kinds of news about the best stocks on the market right now. There shouldn’t be any difficulties in searching these stocks because there are a ton of websites that readily show the information.

What to avoid when buying penny stocks

However, Penny stock trading is not only about what to look for when buying penny stocks it’s also about what to avoid when buying these stocks. When buying penny stocks you will be reading and screening for certain types of stock. Whether you’re looking for sectors, strong balance sheets, solid share structure or breakthrough products, it is not an easy task. While researching these types of companies you will have to keep your eye out for red flags as the pink sheet market is a historically corrupt trading area.

Prior to buying penny stocks, learn how to the market works.

Before you buy any stock you should watch and learn how the market works. Find stocks you like, even ones you don’t like and follow them, watch how the market and these stocks fluctuates. Ensure that you read as much as you can about trading stocks, about your company and how to buy at the right price through solid technical analysis. Some brokers don’t even allow the trading of penny stocks as it is so dangerous. However, there are brokers who allow you to buy these stocks. These brokers will also have information on the companies; you can find the information through their websites or via phone.

Finding a good company

Once you find a company read all about it, even the simple things like how many employees they have. If a company has 3 employees and they’re supposedly engaged in some high manpower work, then the company could be a sham. Ensure that the company doesn’t have a history of reverse splits. If it does, you could buy shares and have the company reverse split on you again. The biggest problem for new penny stock traders is buying into the hype of a stock and failing to learn about the company when a cursory glance would have revealed a history of hyping, dumping and also reverse splitting.

Trading in this market can be dangerous if you don’t do enough research concerning the penny stock market and the stocks within it.

So do you think penny stocks are dangerous? I welcome you to comment below as I am always looking for more opinions. I have been a full time penny stock trader for over 15 years now and have been quite successful. That being said, I have had my hardships as well and I plan on posting an article about those. If you are interested in submitting an article on Forex or penny stocks, please contact me through my Submit An Article page(link to the submit an article page).

Until next time!


(1 Comment)

  • Scott

    I understand that penny stocks are dangerous. But I am only investing with money I can lose! That is the key to this game we call trading. There isn’t any stress when you aren’t involving key money you need.

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