Penny Stocks

Cent stocks, or as they are more prominently known penny stocks, usually start out lower than a dollar a share. Cent stocks are sold on the principle of possible substantial growth.

Often, organizations supplying cent stocks are market newcomers. It’s possible they have not been trading long enough to have gained a good reputation or financial history. A further characteristic is that they may not have an experienced management team. Such elements as these undermine market response and the simplicity of trading with these cent stocks.

Anybody who decides to invest in cent stocks must be mindful that – if they wish to sell the stock at any time – there may not be a market. Cent stocks are “valued low” for a purpose.

Notwithstanding their almost giveaway price, cent stocks are considered ‘high risk.’ Unless you have sufficient cash flow to endure the losses of your original investment and objective returns, cent stocks won’t be the thing for you.

Acquiring the Facts

What is so crucial to gaining the facts?

Cent stocks are susceptible to manipulation and scams. Con artists whose intention is to mislead or defraud count on investors not doing their homework.

One of the typical scams is “pump and dump.” With this type of situation, the promotor amasses cent stocks. Through hard-sell processes, the shares are ‘pitched’ to their investors. The investors are acquired any way possible in the interests of creating a market. Along the way, the value of the cent stocks will increase (perhaps to a few dollars a share). Providing the promoters can acquire more new clients (investors) or persuade existing clients to raise their stock to a higher price, the scam persists and the promotor profits. Once the scam has come to an end, the stocks become highly illiquid, and the price drops. Unfortunate investors are left with nothing but worthless stock.

Where to Get the Right Information

Corrupt promoters are imaginative and determined. They will use all means available and may even spread fake information. It will pay you to verify all/any of their claims through another source.

Business information is found in a number of forms which include:

• Yearly and three-monthly reports
• Fiscal/Financial statements
• Catalogs/Prospectuses

All of these are available from the public library, your broker-dealer, financial adviser or stock exchange.

There is a minimum listing requirement for stock exchanges, which any company must achieve before it can trade them on the exchange. As well as other things, the provisions pertaining to an organizations management, finances, and investment ownership. If the organization is unable to achieve these requirements, they can trade through the OTC (over-the-counter) market. These consists of a group of dealers who trade with each other either for themselves or singular investors.

The Shifting Markets

Customarily, cent stocks are traded on junior or OTC markets. Benefits for investors include a controlled, impartial and existing market with increased protection by means of consistent regulatory standards and enforcement, and better-quality information on the market.

How Can I Identify a Cent Stock Scam?

There are some obvious signs, and here are a few:

• Uninvited phone calls. Be suspicious of any unidentified vendor who calls you offer an “incredible investment opening.”
• Strong-arm selling tactics. Never be forced into making rapid decisions about investments.
• Guarantees of huge rates of return. No adviser or dealer can guarantee an extraordinary return rate, and the regulations prohibit pledges of this kind of future returns.
• Declarations of minimal or no risk. If the predicted return rate is high, the related risk would likely be high too.
• Propositions of discounted commissions. Those charged on cent stock sales are frequently at higher rates than usual.
• Claims about non-public information (inside information). It is prohibited by law to trade based on non-public/insider information. Insider trading penalties may be severe.
• Unwillingness to give stockholder information. A dealer or salesperson should not hesitate at providing you with the relevant information, which could contain a prospectus which will be necessary for you when making informed decisions.

Transpacific Mergers & Acquisitions Commission have tracked and closed down long-lasting trading companies for running “pump and dump” swindles. Whether you receive a cold-call or from a company recognized in the community, seek independent advice, or do your research. We at Transpacific Mergers & Acquisitions Commission are very much in the foreground of protection for investors, but you can help to change this by gaining an understanding of the way the market works.