Penny stocks – is dangerous – those with low trading price, often less than one yuan per share price of the stock. period. In fact, with few exceptions, investors should avoid these super cheap stocks, which generally trade over the counter, rather than a major exchange.
Call them penny stock, stock MICROCAPS or over the counter; any name, they are bad news. Quick, easy promises of riches when it easier to invest in the fall with so little money can be carried out in front. Investors might think, “how risky could it?”
According to the US Securities and Exchange Commission: “Academic studies have found that OTC stocks tend to be highly illiquid; alleged market manipulation frequent target; a negative average return and volatility investmENT; and rarely grow into large companies or in transition to stock exchange. “
below what we want to break all means, but I just want to say that the SEC is not a fan.
Why penny stocks can be very dangerous
To be clear, this is not to say that every penny stocks or OTC company is a scam. The danger is that, over-the-counter stock market scam is where to live. Think of it as a bad neighborhood. Where you can make a mark as a con.
For some background, the OTC market is like from the New York Stock Exchange or the NASDAQ, focused on different exchanges where transactions. Is there a counter securities market. Instead, OTC connect buyers and sellers in the computer and telephone-based system. Øn not trade any stock in the New York Stock Exchange, NASDAQ, or other over-the United States to establish exchange can trade counter. These securities are also referred to as “unlisted stocks.”
In general, OTC stocks tend to be high-risk microcap stocks, including nano-cap stocks (small companies under $ 300 million market capitalization shares) (those of less than $ 500,000) market value.
High-risk US Securities and Exchange Commission with respect to such related stocks have been warning investors. Financial Industry Regulatory Authority (FINRA), the industry’s self-regulatory body, the same wave the red flag to buy over the counterSecurities and transactions.
This is because the company is in the OTC list of unneeded files or periodic financial reports audited, if they are in a major replaceable list they have to do Engelhard, such as the New York Stock Exchange or Nasdaq. In other words, there is no way to know when they tell the truth, they claimed that sales and profits have. Major exchanges have listing requirements; OTC stocks do not. For example, a company must have at least 400 shareholders and at least $ 40 million market value to get listed on the New York Stock Exchange. OTC has no such requirement.
Put it all together, which makes it easier for unscrupulous operators to securities fraud to lie about their business prospects or committed.
But that’s not all. Ie OTC stock exchange hands often “lack of liquidity”, which means they often low trading volume, and there are a limited number of buyers and sellers. This can make it difficult or unable to price the investor to buy or sell shares they want.
This lack of liquidity makes the best vehicle of many OTC stock “pump and dump” scheme, in which the stock promoters to attract investors to buy shares, the stock price increases. Then, when the price becomes high enough, the fire sale of his shares, share prices drop and low returns or even losses left investors. Some see here Wall Street Wolf
In order to protect investors from a decline in these programs, SEC suspended trading over 800 micro stock? – more than 8% of the OTC market – between 2012 to 2015. Once the shares have been suspended from trading, it can not be, unless the latest financial information provided by the company to prove that it actually talked about the operation. Since few Happe’s NS, trading suspension essentially rendered useless shares liar.
Legitimate OTCS
Because it is possible to have the OTC market, investors do not have to worry about a part.
Amidst the hooligans, some of the largest, most respected companies in the world list of foreign them almost counter stocks in the United States, the United States rather than major exchanges. Here, you will find (China) Co., Ltd., Industrial and Commercial Bank shares (IDCBY), which happens to be the world’sLargest bank. You can also buy shares in Switzerland Nestle (NSRGY), the largest food company in the world; China’s Tencent (TCEHY), the country’s largest Internet service provider; and Japan gaming giant Nintendo (NTDOY).
Why the big, international companies listed companies rub shoulders this issue highly speculative penny stocks?
Causes cost and convenient matter. For example, a foreign company listed on the NYSE or Nasdaq must prepare two sets of financial statements audited by everything it does – a line with international accounting standards, and the other attached to the use of generally accepted in the United States accounting principles (GAAP) this is not a requirement over the counter.
With the OTC market, the cost and effort of a small part of foreign companies to gain access to the US stock market investors pool.
The bottom line is that with outside large well-known foreign companies, OTC stocks with too many risks. It is impossible to know the average investor, if the company is in has been rising. And even legitimate small companies may fail almost overnight. Risks of trading OTC stocks is just not worth it.
It is easy to lose money in the stock market investment. Why easier?