One of the major reasons for the immense popularity of penny stocks is its price. Specifically, the low stock prices of penny stocks. This low price makes Penny Stocks accessible to almost all investors and basically, drive the penny stocks.
When Penny Stock prices start to increase, more investors are tempted to invest in the stock. This heightened demand further drives up the stock prices. This, in turn, causes an increase in the overall popularity of the penny stock and the circle continues.
But what exactly triggers the initial surge in the penny stock price? Here are the factors.
However, be warned that the prices of Penny stocks are easy to manipulate when compared to larger stocks. This is because of
#1 Low prices: If a penny stock is priced at $0.01 per share and its price increases to even $0.02 cents, the promoters and insiders would have already doubled their money.
#2 Thin trading: Many penny stocks are thinly traded. So any big purchases can cause the stock prices to inflate. Many insiders buy penny stocks and inflate its price, leading to other investors clamoring in for buying. Soon, the insiders dump the stock and walk away richer.
#3 Legitimate appearance: Many newbies to trading do not realize that, just because a company is listed on a stock market, it would be a legitimate and high-quality company. The truth is that there are many companies that near bankruptcy which is listed on the stock market.
#4 Anonymity of Owners: There are no stringent regulations when listing penny stocks. So, it is possible for owners to stay anonymous, make money through an artificially-created price surge and quickly exit the stocks.
#5 Easy access for Scammers: Many scammers can easily create false promotions and advertisement of companies without the knowledge of the owners.
#6 False promotions about incredulous potentials: Promoters do not focus on the almost-bankrupt status or lack of revenue of the company. Instead, they focus on ridiculous prospects of its product that can potentially change the world – be it an engine that runs on air, or the cure for an incurable disease. Many novice investors may believe these promotions and think the shares as a great investment.
Victor help individuals tap into the abundance of lifestyle freedom through Stocks, Options, and Penny Stock Trading. We provide educational training (only) to help increase profits by understanding the Fundamental and Technical Analysis of the Stock Market.