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Biotech penny stock scams – the penny stock fraud schemes to avoid
Want to trade biotech penny stocks? Interested in the finding out if they can deliver the fantastic returns that you have heard about? Stop! Before you put a single cent of your hard earmed money into these stocks, read this article and acquaint yourself with the potential pitfalls that could be instore for you!
Penny stocks as a rule trade on “the pink sheets”. The reason they are referred to as pink is because floor brokers used to write the orders for penny stocks on pink sheets. These stocks are generally regulated less because they are traded on smaller exchanges – nothing like Nasdaq or the Dow Jones. These small-scale exchanges do not require as much information, such as financial paperwork, in order for the stock to be listed there. So, it is much easier to become a victim of penny stock scams on these small-scale exchanges.
Generally speaking, penny stocks are more volatile than their regular counterparts. Because penny stocks have a relatively lower volume, it is much easier for the price to go up and down, as investors are always in a hurry either to buy more shares or to sell the entire lot. If you want to avoid mistakes here, you should never buy all of your shares in one go. This way you might be paying higher commissions, but in return you will be protected from the major risk of buying a stock that costs too much.
One of the major biotech penny stock scams to watch out for (and of course this applies to any types of penny stocks) is via advertising. Many small stock companies are made as shells. This may not be legal, but it is difficult for the authorities to keep track of all the penny stock fraud going on. What these companies will often do is send emails to investors in the hopes of pumping up their stock. What they are looking for is a price spike. This spike may actually be beneficial for those who have already made an investment in the stock, but it is extremely bad news for those who stick with the stock for too long..and too long can be just a few hours, as before you know it the scammers have sold all their shares and the price of your stock has plunged. This method is widely known as “pump and dump.”
Often the email from these penny stock scams will sound extremely sensational. They might claim to have insider information about a great company with an exciting new product. They might tell you about a merger that a company is about to go through, which will make its stock go through the roof. They will probably suggest that you buy as soon as possible.
The bottom line is that if it looks too good to be true, it probably is. If the provider of this “inside information” is not someone you particularly trust, then it is best to just click “delete” immediately. Even if the email comes from someone you know, always read between the lines, and definitely avoid those stocks that are claimed to have an immediate increase. It just makes sense.
Knowledge is power. If you are aware of the biotech penny stock scams then you are in the best position to avoid them.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Penny Stock Trading27 Dec 2010|