I'm sure we've all seen an ad at some point relating to someone
making huge profits when buying penny stocks online. But what they
aren't telling you is the risks involved with investing in these types
of stocks. Penny stocks are basically any stock that is worth below five
dollars. The businesses that own stocks in this micro cap category are
either on the verge of bankruptcy or they are a startup company.
Because
the stock price is so low there is potential for people who purchase
high quantities of the stock to manipulate the price. How does this
manipulation work? This usually starts with a penny stock guru. You can
find them all over the web when searching for penny stocks. These gurus
are usually trying to start a pump and dump.
How does a pump and dump work?
When
a stock guru decides to do a pump and dump the first thing they look
for is a low value stock that they can easily manipulate. When they find
the ideal stock the next thing they do is buy a high quantity of this
stock at a cheap price. They convince everyone following their trades to
invest in this stock and promote it as their number one pick. After
enough people have invested in this stock the guru then sells all of
their stock for a nice profit and everyone else is left with worthless
stock.
One of the easiest ways to spot a site that is looking to
manipulate the price of a stock is to find one that offers free advice.
I'm not saying every site that offers free advice is looking to do this
but we have to ask ourselves. If that isn't the case then why is the
advice free? Instead of looking at these guru's websites to buy penny
stocks online I like to do my own research.
I like to look for
companies that are showing some good news for genuine potential growth.
If a company has been talking about how they have a product coming out
soon and the product sounds promising then that's a good indication that
the stock could potentially move up. If they have released products in
the past it wouldn't hurt to look at stock trends. If the last product
they had with a similar amount of buzz caused the stock to move up then
there's a good chance of this happening again. But always remember in
the land of penny stocks nothing is guaranteed.