Chapter 9: Warnings and Risks - Some Warnings
1. The best way to make solid money with penny stocks is in the long term. Therefore, any company that encourages you to buy and sell quickly is not giving you an honest shake.
In fact, any company that puts a lot of pressure on you for sales is not one to work with. Remember, a company that is just starting out is one that needs time to grow and expand. Whats more is that it needs time to get its feet wet.
2. Avoid manipulation techniques by making sure to do your homework. A penny stock that has risen quickly only to fall hard is one that has been manipulated. Stay clear of these risky penny stock investments.
3. Dont invest blindly. Some brokers will encourage you to write them a blank check, allowing them to use the funds that you have put aside to invest in any way that they want to. It is important to play a role in this process especially until you get to know your broker fully.
You should know exactly where your money is going, how it will be spent and on whom it is to be spent. In fact, it should be broken down for you into how much will be spent on management and promoters and how much is going to increasing sales.
4. Check out the trade confirmations. These provide for the details of the transaction and contain key pieces of information. It should not be marked as unsolicited as this can help the broker to get around specific laws regarding the trade.
Also, make sure to read through the confirmation to insure that your information is accurate. This will include things like mistakes in your income, your net worth, and in what your investment objectives are.
This can be a way for the penny stock broker to be misrepresenting you and therefore not providing the right information about how suitable you are for a penny stock.
5. Always invest the time in monitoring your account. You should know what transactions are being made, who is making them and if they are in fact the ones to be made. Keeping in touch and keeping on top of your stocks are totally different things. Make sure you know just what needs to be accomplished.
There is no doubt that there are going to be problems when it comes to some brokers and even some poor companies in penny stocks. In fact, there are many cases where people lose a great deal of money in penny stocks because of these factors. Yet, learning from this things can help you to make better decisions about the penny stocks that you invest in.
More Research Helps
The good news is this. The Securities Division offers quite a bit of information about penny stocks as well as provides help in finding legitimate opportunities. You do not need to worry about not finding the answers you need. Remember to take the time to find the right company, the right broker and the laws for your specific state as well. All of this can be provided through your Securities Division.
In fact, there are big differences in which secondary markets in penny stocks can be quite tricky.
Microcap Investing
The one that is working for his own bottom line may not be as honest or provide as benefiting information to you.
This company has not been traded, most likely, on the stock market. You will learn in the next chapters more about how to learn more about the stock so that you personally can judge the amount of risk that plays a role in that stock. So, at this point, you know that you can purchase penny stocks on the OTC markets. Wouldnt any good company want to be contacted in order to actually do more business? In fact, there are many cases where people lose a great deal of money in penny stocks because of these factors. In fact, they are traded as part of what is called the OTC.
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