Penny Stock Tips

by Eric Martin
(Leeds, UK)

Is trading penny stocks a good idea? This is a very good question and the answer for most traders is "no". Penny stocks are extremely high risk and many of them end up losing a large percent or even all of their value eventually.

There is always a reason why penny stocks are so cheap. Perhaps a company looks as though it might post a large loss in the near future or maybe the company's future looks bleak due to a large numbers of liabilities that may not be met.

If you plan to buy penny stocks, be sure to do your research thoroughly. Another important spend a lot of time learning how to trade stocks before you start trading. One of my favorite quotes is from the most successful investor Warren Buffet, "The only risk in investing is ignorance". This is so true.

Another important tip is to choose your penny stock broker carefully. Many stock brokers don't like penny stock traders and place extra charges for buying cheap stocks. It's important to avoid these as they will eat into your profits or increase your losses.

Another tip is to be aware that there are many scams out there relating especially to penny stocks. As many penny stocks have relatively low volumes, it can be very easy to manipulate the price.

This has resulted in opportunistic con artists trying create big price movements and spreading false rumors about a company to explain why this. This is often done to encourage inexperienced traders to buy the stock to further inflate the price. The con artist can then sell his stock at a high price for a big profit. Most of the inexperienced traders who bought the stock later will lose money when the stock goes back down. This is commonly called a “pump and dump” strategy.

The reverse strategy where a fraudster tries to force down prices, so he can buy them at a cheap price is commonly called the “poop and scoop” strategy.

Eric Martin
http://www.howtotradestocks.org