Posts Tagged ‘Volatility’
General Review On Penny Stocks
Written by troy on Sunday, April 05, 2009 | No Comments
Categories: Uncategorized Tags: Financial Reporting, Nyse Amex, penny stocks, Small Caps, Volatility
Generally, any stock that trades outside the major stock exchanges and also that is taken as depreciatory is known as “penny stock”. These major stock exchanges include NYSE, AMEX or NASDAQ. Sometimes the terms penny stocks, small caps, and nano caps are brought into use without interchangeably. But the rank of the penny stock is determined by share price, not by market capitalization or listing service.
Market caps of penny stock are often less than $500 million. Those that trade on low volumes over the counter take it as highly speculative. It is believed that it may prove hard task to sell penny stocks, once they are purchased. This is because of the fact that it may sometimes be difficult to locate quotations for particular penny stocks. Investors in penny stocks are expected to remain ready to face the possibility of losing their entire investment.
Nevertheless, the penny stock is able to lure new investors with its low price and its possibility to receive speedy profits that may reach up to one hundred percent in certain cases. In a very similar way, there always remains the possibility of severe drops that may even reach over 90 percent in the long term. Penny stocks are considered as investments, in which risk factor is highly involved. Consequently, investors must be aware of the various risks that are involved, such as limited liquidity, lack of financial reporting and fraud.
If liquidity is given prominence, then penny stock has very fewer shareholders. It is less “liquid”; this term means that in comparison to a larger company, it will buy and sell less shares. Any unnoticed change in the demand or supply can result in the unpredictability of stock price. Consequently, it may lead to the rapid rise in the stock price or bring it down to the earth. Therefore, due to the lack of liquidity and volatility, penny stock is more likely to be exploited by management, market markers or third parties. It becomes very tough to sell a stock specifically on a day, when there are no buyers because of the lack of liquidity.
Another reason is that to remain on the OTCBB, the listing requirements are very minimal as compared to NASDAQ or NYSE. Generally, what happens is that those companies which could not make on bigger exchanges or have been de-listed, here they have an opportunity to get re-listed on the OTCBB or Pink Sheets.
Moreover, if compared to major markets, stocks trading on the Pink Sheets hardly have any regulatory or listing requirements. There is nothing to provide protection to shareholders such as accounting standards, change in notification of ownership of shares and so on.
All these features make it easy to use penny stock in any deceitful scheme. However this does not mean that all stocks that are listed on the OTCBB are deceitful. A number of stocks on the OTCBB have fair-trading.
By: Stefan Rockhaus
About the Author:
Market caps of penny stock are often less than $500 million. Those that trade on low volumes over the counter take it as highly speculative. It is believed that it may prove hard task to sell penny stocks, once they are purchased. This is because of the fact that it may sometimes be difficult to locate quotations for particular penny stocks. Investors in penny stocks are expected to remain ready to face the possibility of losing their entire investment.
Nevertheless, the penny stock is able to lure new investors with its low price and its possibility to receive speedy profits that may reach up to one hundred percent in certain cases. In a very similar way, there always remains the possibility of severe drops that may even reach over 90 percent in the long term. Penny stocks are considered as investments, in which risk factor is highly involved. Consequently, investors must be aware of the various risks that are involved, such as limited liquidity, lack of financial reporting and fraud.
If liquidity is given prominence, then penny stock has very fewer shareholders. It is less “liquid”; this term means that in comparison to a larger company, it will buy and sell less shares. Any unnoticed change in the demand or supply can result in the unpredictability of stock price. Consequently, it may lead to the rapid rise in the stock price or bring it down to the earth. Therefore, due to the lack of liquidity and volatility, penny stock is more likely to be exploited by management, market markers or third parties. It becomes very tough to sell a stock specifically on a day, when there are no buyers because of the lack of liquidity.
Another reason is that to remain on the OTCBB, the listing requirements are very minimal as compared to NASDAQ or NYSE. Generally, what happens is that those companies which could not make on bigger exchanges or have been de-listed, here they have an opportunity to get re-listed on the OTCBB or Pink Sheets.
Moreover, if compared to major markets, stocks trading on the Pink Sheets hardly have any regulatory or listing requirements. There is nothing to provide protection to shareholders such as accounting standards, change in notification of ownership of shares and so on.
All these features make it easy to use penny stock in any deceitful scheme. However this does not mean that all stocks that are listed on the OTCBB are deceitful. A number of stocks on the OTCBB have fair-trading.
By: Stefan Rockhaus
About the Author:
Article by Stefan Rockhaus. For further detailed information on penny stocks visit Penny Stocks Investor – More resources at Mega Info Spot
The Dangers of Penny Stocks
Written by troy on Sunday, April 05, 2009 | No Comments
Categories: Uncategorized Tags: Lots Of Money, penny stocks, Solid Investment, Volatility
There are several reasons why it is dangerous to trade penny stocks. These stocks can seem very attractive to beginners so please read the warnings below.
Definition:
Penny stocks are defined as stocks with a price per share of less than five dollars (or one dollar in some cases). Many of them trade on the OTC/BB (Over the Counter, Bulletin Board) stock exchanges, where they are sometimes known as Pink Sheet stocks, and they might have symbol extensions like .PK or .OB.
Volatility:
A typical “blue-chip” stock with a price of twenty dollars will typically only fluctuate by one to two percent per day while a penny stock could easily go up or down ten or twenty percent or more. In fact, it is not uncommon to lose eighty percent of your investment within a week!
Scams:
“Alert! XYZ is at $0.024 and is expected to hit $0.35 at the end of the week!”
You have probably received several emails like this. Penny stocks are subject to frequent spam email attacks.
In the classic “pump and dump” scheme, a person or company will buy some stock and then email many people telling them that stock is going to go up a large amount. Many readers of this email will then buy that stock, causing its price to go up dramatically because of the law of supply and demand. Once the stock price has gone up, the scammer will sell his or her shares for a sizeable profit. The stock price will then usually drop back down significantly because the stock was overvalued. This results in many unsuspecting investors losing lots of money. This is a very common problem and the Securities and Exchange Commission actively tries to detect these scams and charge these criminals.
Limited Information:
For many penny stock companies, there is very little information available online. This is due to the fact that many of them trade on the OTC/BB exchanges, which do not require extensive reports to be available to the public. Without the appropriate information, it is very hard to make solid investment decisions.
Conclusion:
Now that you have a better idea of what penny stocks are and how dangerous they can be, please be careful as you move forward with your trading strategies. You do not have to stay away from them completely. In fact, I recommend you try a couple of them using a small amount of money, just to “scratch your itch” and see for yourself.
By: Nicholas Swezey
About the Author:
Definition:
Penny stocks are defined as stocks with a price per share of less than five dollars (or one dollar in some cases). Many of them trade on the OTC/BB (Over the Counter, Bulletin Board) stock exchanges, where they are sometimes known as Pink Sheet stocks, and they might have symbol extensions like .PK or .OB.
Volatility:
A typical “blue-chip” stock with a price of twenty dollars will typically only fluctuate by one to two percent per day while a penny stock could easily go up or down ten or twenty percent or more. In fact, it is not uncommon to lose eighty percent of your investment within a week!
Scams:
“Alert! XYZ is at $0.024 and is expected to hit $0.35 at the end of the week!”
You have probably received several emails like this. Penny stocks are subject to frequent spam email attacks.
In the classic “pump and dump” scheme, a person or company will buy some stock and then email many people telling them that stock is going to go up a large amount. Many readers of this email will then buy that stock, causing its price to go up dramatically because of the law of supply and demand. Once the stock price has gone up, the scammer will sell his or her shares for a sizeable profit. The stock price will then usually drop back down significantly because the stock was overvalued. This results in many unsuspecting investors losing lots of money. This is a very common problem and the Securities and Exchange Commission actively tries to detect these scams and charge these criminals.
Limited Information:
For many penny stock companies, there is very little information available online. This is due to the fact that many of them trade on the OTC/BB exchanges, which do not require extensive reports to be available to the public. Without the appropriate information, it is very hard to make solid investment decisions.
Conclusion:
Now that you have a better idea of what penny stocks are and how dangerous they can be, please be careful as you move forward with your trading strategies. You do not have to stay away from them completely. In fact, I recommend you try a couple of them using a small amount of money, just to “scratch your itch” and see for yourself.
By: Nicholas Swezey
About the Author:
Nicholas Swezey is the creator of the Free Stock Market Game at HowTheMarketWorks.com.