First, what is the definition of a penny stock? Here are several:

1. Stocks priced under $1

2. Stocks priced under $5

3. Companies with less than $4 million in net tangible assets

4. Basically the stock of a VERY small company with very little history. i.e. a high risk potential high reward / potential high loss company.

 

 

 What are the risks? What are the warning signs? They are many, but here are a few:

1. High potential for manipulation - A common method is for a broker to gather a large number of shares of these stocks at a very low price. They will then use high pressure methods to move the stock creating a demand and driving up the price. This will be done until there are no more buyers then the broker will bail causing the stock tp plumment. At this point, there is very little opportunity for the remaining shareholders to recover.

2. Requests to invest through blind pools or blank checks

3. Mismarked trades or new account forms - If the trade is marked " unsolicited " when the broker did in fact solicit the trade, that is a warning sign.

 Invest in Penny Stocks only through a broker that is known to you. This is an investment only for the most experienced investor. This is an investment that is VERY HIGH RISK!! Don't let the name Penny Stocks lead you astray.