How do we identify penny stocks

Pennystock Stocks: So Alluring Yet Dangerous

Pennystocks - with their absolutely low prices they tempt you to buy quickly. Here we will show you how worthwhile such savings shopping really is.

Identify Pennystocks Stocks

Pennystock stocks or simply pennystocks are securities that have an extremely low starting value. This is usually less than one unit of the local currency.

So if a share were offered for sale at a price below € 1, it would be a penny stock. In America, the term is used a little differently: There stocks are already considered penny stocks if their value is less than $ 5.

Since penny stocks have a very low volume, they are often subject to high volatility, i.e. strong price fluctuations. Pennystocks: safe investment? Investing in Pennystock shares can therefore be described as risky and speculative.

Where penny stocks are represented

In the major indices of the German stock exchange such as DAX, MDAX, TexDax and SDAX, Pennystock shares are hardly to be found any more. This was achieved through stricter listing rules, which specify which criteria a share must meet in order to continue to be traded there. Stocks with too little value or questionable background were therefore excluded from trading.

In contrast, there is a very large number of Pennystock shares on the unregulated Regulated Unofficial Market, the Open Market. There are various reasons for this: Firstly, a listing in the Open Market costs comparatively little. Second, there is no need to publish an issue prospectus and the publication of annual reports and balance sheets is also not mandatory.

In addition, the investor protection associated with the Securities Trading Act applies only to a limited extent to penny stocks listed in the Open Market.

Why Pennystock Stocks Are Risky

The risk of penny stocks is not based solely on their high volatility.

The problem is that these papers are often used by dubious rip-offs, as they are very suitable for price manipulation. How stock price manipulation works

The initiators stock up on shares at the extremely favorable starting prices, for example 80 cents per share. Subsequently, they disseminate false information in a targeted manner among small investors, for example by advertising call, fax or email.

These supposedly provide trustworthy news about the company in question, in terms of its growth or expansion plans.

If many investors invest in it now, the value of the company and with it the price of its share will of course increase.

The rip-offs, who originally bought hundreds of papers at 80 cents each, can now sell them for much higher prices and collect the profit.

Prices are falling abruptly and retail investors are left with nothing.

Nevertheless, the “cheap” stocks often exert a special fascination on investors, because the opportunity for a rapid multiplication beckons. In fact, quick price jumps are possible at Pennystocks - but also downwards.

Of course, there are some really reputable pennystock stocks, too, but filtering these papers out of the great mountain of others is an almost impossible task.

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