A Penny Stock Guide - Five Dangerous Indicators You Should Be wary of Before Investing. - By: Ashley Adams

Penny stocks can be perilous, there's no doubt about this. There is less information available on most of the smaller companies that trade at these nominal prices per share, so it becomes difficult ascertain which companies are really going places and the ones that are going nowhere.

The low trading volume a lot of these stocks have make them prime for hugely profitable day trading, but also open the stocks as many as potential manipulation by people wanting to run scams on legit investors.

The panorama of penny stock investing is wrought with dangers but this penny stock guide to those pitfalls should help you avoid most of the worst ones fairly effortlessly. It is actually pretty easy as long as you know the warning indications.

THERE IS NOT A SUCH THING AS A FREE LUNCH - This old saying is filled with general wisdom, and it refers to penny stock investing very likely more adamantly than in another place. One of the biggest things to watch out for with penny stocks is what is actually a "Pump and Dump" scam.

These start when the scammer selects a near-worthless share and quietly buys up an extensive amount of it. As a result of (deliberately selected) low level of the stock, his purchases can have even driven the price up a little. The scammer then discussions on forums and transmits spam emails telling people relating to this new "hot stock tip" and anyone who bites and buys helps drive the amount up even more.

Before a long time, even more skeptical people set out to think this might be a good tip because they see the stock price going up, so they start in the future on board too. The next action you know, the scammer provides all his stock for max profit, the bubble bursts and everyone else is left holding shares worth lower than they paid for these.

ANNUAL REPORT? WHAT ANNUAL REPORT? - Companies whose stocks are traded over the counter don't operate under the many rules and requirements exchange stocks have to follow. That means there does exist more room for accounting fraud and also other ways for companies to mislead their investors into thinking they can be more valuable than they actually are.

Some companies may not even really exist and are set up to defraud investors to begin with. OTCBB traded stocks ought to file (on time) while using the SEC annually, which at least gives them at least one paper trail and authority. Pink Sheets traded stocks have virtually no requirements, however. As some sort of rule, unless you have very confident information on a. PK stock it's probably best to stick with. OTCBB to be on the safer side of things.

$0. 0096 PER SHARE! - Stocks that trade for fractions on the penny are extremely perilous and should generally end up avoided. They are close to valueless already therefore wouldn't take much to enable them to lose all their value.

XXXXB THE LOCATION WHERE THE LAST B STANDS WITH REGARD TO BAD NEWS - Stocks with five letter symbols generally means there does exist something going on with the company. It could be described as a bankruptcy filing or maybe they failed to file a financial report in a timely manner. Regardless of the essentials, it usually means it's best to give it a pass and look for a less risky expense.

BARGAIN BASEMENT BANKRUPTCY BIN - Sometimes you'll watch a big company that you've heard of file for bankruptcy and go out involving business but their shares it's still trading on the market for a fraction of their ex - price. Don't be tempted to get involved, the price may look like a bargain but there is a significant chance they will become completely worthless and that never produces a good investment.

Following the guidelines of this penny stock guide should assist you avoid the worst dealing missteps. Good luck together with happy trading!

About the Author

The stock market is where firms and people make trades shares of coporations.

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