Although when done correctly buying penny stocks can be extremely profitable it is also a mine field of fraud that you must be very careful to avoid. The most popular method is the method known as the pump and dump.
The pump and dump works like this. A website will make posts and press releases detailing something positive such as a new product or great financial health. They will also send out newsletters claiming to be from unconnected sources and post messages in forums and chat rooms and all of them will urge you to buy stock before the price skyrockets. You may also hear it mentioned on the radio and even television.
The unsuspecting investors then pile in sending the price of the stock up, this is the pump part of the fraud. Now comes the dump because as soon as the people behind the fraud see that the stock has reached its peak they sell their stock and then dump the campaign, in other words they no longer hype up the stock and therefore the price drops and all those who invested end up losing their money.
The reason this is done with penny stock companies is because it is an easy market to manipulate thanks to the lack of details contained about companies that trade this way. There are several other ways in which this scam can be worked but all are based on pumping up the price and then dumping once the stock reaches its peak. It is also reported that up to 15% of spam emails are based around recommending penny stocks.
Legitimate companies do exist on the OTC market and there is certainly money to be made buying penny stocks but because of the massive amount of fraud that is there you should never try your hand at penny stocks without first receiving training.
Avoid making mistakes and losing all your money by learning all you can about buying penny stocks. To find the best place to get the help and advice you need click here!.
Source: www.isnare.com
