What are the Risks Associated with Penny Stocks?
- Limited information: Given the fact that companies issuing penny stocks are start-ups, there exists a dearth of information on their financial soundness, past performance, growth prospects, etc.
- Scams: Penny stock scams are commonplace in international financial history. One such popular method is “Pump and Dump”. Companies and scammers purchase a considerable amount of penny stocks resulting in value inflation which attracts other investors to follow the hype.
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