Penny stocks have always been considered speculative and easily manipulated.
By influencing investors with misleading data on a company, fraudulent brokers or companies can hype up the price of a stock, then sell their own shares once the price reaches a certain level. This scam, known as "pump and dump," is practically as old as the stock market.
Since the earliest days of the stock markets, promoters, phony research groups and unscrupulous brokerage firms lured novice investors into believing a given penny stock was the next Infosys.
Often, they do not actually explain why a company is so successful or what it actually does; they distract readers with fancy financial charts and details of their successful track record.
They then try to suck you in with these huge returns, but there's no accountability as to what's behind them. Big increase in trading volume or sudden changes in a stock's price, especially when limited financial data on the company is available, may indicate that some sort of fraud or manipulation is taking place.
I personally believe that only investors who are able to do the necessary research on a company -- and who are prepared to lose 100 percent of their investment -- should get involved with penny stocks!
Of course, there are a few tales of hidden riches. But for every miracle, there are thousands of losers. When you look at financial markets from a distance, there are many sheep and a few wolves!
You don't make money by buying penny stocks. You make money by selling penny stocks, not as an investor, but as a stock broker. The stock brokers are the principal ones making a killing in the penny stock business, not the naive investor. As all of you must be knowing, they charge huge commissions when compared to the price of the penny stock.
Thank you Traderji and my fellow traders