Article Penny Stocks: Understanding Risks and Rewards

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Penny stocks come with high risks and the potential for extraordinary returns, so investing in them requires care and caution. Due to their inherent risks, few brokerages even offer penny stocks to their clients. Penny stock companies are often headed for bankruptcy or are highly overleveraged, because of that investing in penny stocks is risky. There are two ways to make money with penny stocks, but they’re both high-risk strategies. Below is a breakdown of the risk and rewards of penny stocks.



The Lowdown on Penny Stocks Penny stocks can be defined in many different ways. Most people logically assume that penny stocks refer to stocks trading for less than $1. However, the SEC defines penny stocks as stocks trading for less than $5. Generally, penny stocks trade on the Pink Sheets or FINRA’s OTC Bulletin Board (OTCBB). Both exchanges should be approached with extreme caution, but even more so the Pink Sheets since these companies aren’t required to file with the...
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