As said by some investors, any stock trading under $5 is a penny stocks. Those investors look for to evade stocks they believe to be highly risky. Even though the term penny stocks are commonly known aspect, all people don’t have perfect knowledge about the penny stocks
. Thus there are several myths and facts about it.
False: A common fallacies pertaining to penny stocks
is that there is a positive correlation between the number of stocks a person owns and his or her returns.
Truth: There is no such term. The success for trading never relies on the amount of stocks a person owns and his or her returns. Rather it depends on the experience level of an investor.
False: They’re riskier than other investments. In an age when blue chips like AIG or Lehman Brothers can swing just as wildly as the crankiest penny stock, even the big names are no sure thing.
Truth: Essentially penny stocks are not free from risk. But it’s that risk that brings with it the reward potential.
False: "You'll lose all your money if you trade penny stocks."
Truth: Essentially, any form of investing in stocks occupies risk. The only way to get rid of lose is to minimize the risk. It can be achieved by researching, learning, and practicing trading before starting.
False: OTC Stocks Aren’t as Legitimate as Blue Chips
Truth: It not true because a stock isn’t traded on a major exchange like NYSE or NASDAQ that the company is someway defective. In reality, the opposite can sometimes be true. Exchanges like NYSE have heavy listing fees and requirements that prevent smaller companies from getting listed. Some of the most compelling investment stories were those of small companies listed on over-the-counter services like OTCBB or Pink Sheets.
OTC stocks are not subject to fraud than listed companies are. Stocks listed on services like OTCBB and OTCQX have heightened listing and disclosure requirements over the past decade to help keep things transparent for investors.
False: The broker will do everything for you. You have to invest money only. and you will get huge money.
Truth: You have to invest your brain along with money. Blindly following a broker will incur loss only. It is good to take the help of a broker to know the company information. But it is not wise act to follow his words blindly. You can make your own research work. You should listen to your broker. But you should also question him. Because at his core, he's a salesman, so he's trying to sell you something. Press him on details. Why is this stock the next great stock? Did he invest his own money in it?