Sometimes when we invest, there are stocks that are too small to have a stock exchange listing on one of the larger trade exchanges. These kinds of holdings are normally called penny stocks. These are share offerings of companies that are new. Penny stocks are attractive to investors because of their low float, high volatility and the possibility of good returns. When we make stock recommendations, penny stocks are given less priority because they are considered very risky investments. However, investors are optimistic on this because there are some small and/or new companies that can see huge 100% run ups in a day.

The rules that govern penny stocks are not that strict as compared to larger shares on other stock exchanges. This means that these rules can be of risk of manipulation. In cases like this the investors would engage in a pump and dump scheme. This stock recommendations scheme is manipulated by bigger managers with large cash positions. They purchase the shares, causing the price to climb, and then dump their shares at a big profit. We must be aware that a penny stocks that have recently risen sharply should not be purchased.

Penny stocks can be very risky, but there are some that have great potential so they might make for some quick gains. There are some companies who started out small and became big because of the profits that they have made when they first purchased penny stocks. In choosing penny stocks, it is important to search for some information about the business. Many times, there are scams in these small stocks. These stocks are very well promoted through stock recommendations, which makes the investors fall for it and after purchasing it they will find out that it is a fraud. There are lot of ways of pump and dump holdings, which turn out to be scams. These include: forged emails and fake investment reports that features fraud claims and fake figures that they usually present to investors. Fraud penny stocks are usually managed by a very well organized groups, particularly in Eastern Europe and Asia. They hacked computers using passwords and logins to electronic brokerages at public computer terminals in hotel or elsewhere and can scam accounts to buy shares while selling their own, making the customer accounts blanked and leaving many shares worthless.

First things first,penny stocks are legitimate stocks. There are only some who are very well promoted which turned out to be a fraud. The key in making a wise investment decision is research and education. Investors must be aware of the concerns behind investing in these hyper-volatile names. In the United States, we have the SEC, that ensures that the securities markets operate fairly and in a well managed manner. It protects the investors from fraud in the sales of securities, illegal practices and manipulation. However, legitimate information can sometimes not even exist, it is up to the investors to know how to do this.

Recommendations from legitimate organizations can help those who want to buy legitimate penny stocks. Remember, it is always better to ask the help of the experts in order to stay safe in stocks.