The quick information about penny stocks is here. You might read that penny stocks have lower per stock value and are very risky. However, in the bunch of fraudulent companies, there are a few new and ethical companies collecting funds through their low-cost stocks. The education about these stocks is essential in building a good scope for building high ROI.
Penny stocks are regarded as risky and disreputable. There are exceptions for a few groups but those startups exist in a real sense. There is no way to disparage any company with low stock prices. There are many well-deserved companies with solid business principles looking for the support of the people to club up the funds and establish the new venture. However, the reputed companies are never willing, to begin with, penny stocks to raise their capital. There are some defined reasons for the same.
Penny stocks are risky, time-consuming and expensive
‘Public’ segment companies are registered with SEC and need to mention the required information under the Securities Exchange Act of 1934. This registration makes the company’s position legal and the company gives ‘registration statement’ as a proof of their policies. SEC needs full proofs of the company’s credibility and there are periodic disclosure filings done on a periodic basis. There are certain rules specified for the companies done by financial experts. The public registration of securities implies to giving a lot of time and money to disclosure and compliance. The tricky operators can’t manipulate the blue-chip stocks much and there are more investors contributing to the higher market capitalization value.
Valued Investors in company’s pocket
There are some exemptions to register for the general requirement for securities. There are some ‘accredited investors’ and Rule 506 defines the company’s policies to offer and sell securities to the customers with the least regulatory burden. These valued investors need to meet certain income or asset criteria defined in Rule 506.
The major benefit of registration is that it allows the purchase and selling of the securities to the sophisticated investors. The honest companies are always looking for the ideal investors having an understanding of the business and its prospects. Always remember that the high valued investors are much less trouble than the unsophisticated investors. The company’s value can increase the quality of the customers investing in it.
Penny stocks are highly liquid than the unregistered securities. These stocks have the least restrictions and the securities purchased under pink sheets or OTCBB are purchased under an exception from the registration. The real levels are more complicated and volatile in the case of penny stocks. The startup companies initiating penny stocks on the trading platform can’t provide full security to their investors. The stocks can’t be traded easily as the dealer’s quotations vary and the prices of the stocks may even fall to zero level. This is the reason for the investors to pay less emphasis to penny stocks rather than the blue-chip stocks. The prospects of shady operators create a hassle in the mind of the investors seeking for increased ROI.
The penny stock investors are somehow prepared for the possibility of losing their whole investment. The selection of a right company from the bunch of thousands of options is not at all easy. It doesn’t mean that there are …