![\"PENNY](\"https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2019\/01\/penny-stocks-how-much-does-it-cost-to-invest-in-2-e1548753494152.jpg\")
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Penny stocks sound cheap, don’t you think?<\/span><\/p>\n Yes, because they are. They are also called micro-cap stocks<\/span><\/p>\n Penny stocks describe shares of a company that trades for low amounts. It is usually between $0.01 to $2.00. But some institutions count a penny stock is anything that trades for less than $5.00 per share.<\/span><\/p>\n They’re not expensive, so what\u2019s the catch?<\/span><\/p>\n So why trade penny stocks? <\/span><\/p>\n Everyone who entered the stock market knows that penny stocks equal a bigger risk than regular stocks. <\/span><\/p>\n The reason for inflated risk is simple. The companies that hold penny stock typically have no profits and minimal operations. \u00a0<\/span><\/p>\n Many of these companies are speculative because they are thinly traded, usually over the counter instead of on major exchanges like the New York Stock Exchange. <\/span><\/p>\n They usually trade on the pink sheets or on FINRA\u2019s over-the-counter bulletin board (OTCBB) and are not required to file with the Securities and Exchange Commission (SEC).<\/span><\/p>\n These stocks have low liquidity due to a lack of buyers and sellers. Hence, orders may not be filled right away or even at all. Moreover, volatility tends to be high among OTC (Over-the-counter) stocks, and bid-ask spreads are frequently large.<\/span><\/p>\n Investors in penny stocks should be prepared for the possibility that they may lose their whole investment.<\/span><\/p>\n Plus, penny stocks are notorious for being part of so-called pump-and-dump schemes. The scammers buy up shares and then promote it as the next hot stock on blogs, message boards, and e-mails. Once the stock price is unnaturally pumped up by all the gossips, the scammers sell their stake. The investors stay with big losses.<\/span><\/p>\n But\u2026<\/span><\/p>\n