If you’re near or in retirement and have not heard of penny stocks, that’s probably a good thing. Penny stocks are common stocks that trade at less than five dollars a share and are normally traded outside of the major exchanges such as NASDAQ and AMEX. They are traded OTC (over the counter) through services such as OTC bulletin board or Pink Quote, an electronic quotation system operated by Pink OTC markets. Though the potential high returns are often alluring, there are a number of risks to buying penny stocks that you should be well aware of:
Accurate information on some penny stock companies can be difficult to obtain and can be deceptive. This can lead to financially risky decisions. Buying penny stocks is considered high risk by the SEC. The minimal financial reporting requirements compared to the major markets makes a natural hiding place for fraudsters.
A pink sheets penny stock has almost no requirements for accountability to investors. These companies do not need to disclose changes in ownership of stock or many things which could effect the financial health of the company. The SEC requires that in order for a broker to sell penny stocks they must approve the customer for the transaction and receive a written agreement. The firm must issue a document to the potential customer explaining the risk of penny stocks. Continue reading Risks to Buying Penny Stocks
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