| When dabbling in penny stocks online, the first and | | | | artificial hype and manipulation. |
| most vital lesson you must learn is that the penny | | | | Penny Stocks Online Fraud Scheme #1: Pump and |
| stock market is fraught with peril and rampant with | | | | Dump |
| fraud. You must learn how to steer clear of this fraud | | | | The first micro cap fraud scheme you must familiarize |
| to secure your stock trading success. I will define for | | | | yourself with is the pump and dump. The basic |
| you the term penny stocks and then illustrate two of | | | | concept of the pump and dump is that a group of |
| the most common micro cap fraud schemes. | | | | well-connected individuals select a relatively obscure |
| What Are Penny Stocks and Where Do You Find | | | | penny stock then hype it so that novice investors buy |
| Them Online? | | | | it up fast. This causes the value of the stock to be |
| Penny stocks are basically common stocks which are | | | | temporarily inflated. As soon as the value inflates, the |
| traded through Over-the-Counter quotation services | | | | party responsible for the hype sells it off for profit, |
| and have values under $5. Some will call a micro cap | | | | leaving the poor novices with a crashing stock that is |
| stock a penny stock. Micro cap stocks are common | | | | hard to sell (because penny stocks lack liquidity). |
| stocks of companies with a market capitalization of | | | | Common places to find people exploiting the pump and |
| under $250 million. You must appreciate how these | | | | dump are so-called penny stock newsletters as well |
| low value stocks are inherently volatile and speculative. | | | | as within stock trading forums oriented around penny |
| The Over-the-Counter quotation services where you | | | | stocks online. The moral of the story is this: don't ever |
| will find most penny stocks online are the OTCBB | | | | take someone else's word for the value and potential |
| (Over-the-Counter Bulletin Board) and the Pink Sheets | | | | of a stock. More often than not, they're trying to exploit |
| (Pink OTC Markets or the Pink Quote). These are not | | | | you. Learn to do your own research and make your |
| full stock exchanges like NASDAQ (National | | | | own decisions. |
| Association of Securities Dealers Automated | | | | Penny Stocks Online Fraud Scheme #2: Chop Stocks |
| Quotations) or the NYSE (New York Stock | | | | The other scheme you need to be aware of is the |
| Exchange). | | | | chop stock. Chop stocks are when unscrupulous |
| It is important that you understand why this is relevant. | | | | brokers and stock promoters get together to buy ultra |
| Often times when stocks don't fulfill standards of the | | | | low value stocks at an even further discounted price, |
| major stock exchanges or if they fail to file with the | | | | then hard sell you the stock at a much higher price. |
| SEC (Securities and Exchange Commission), they are | | | | Unfortunately, many naive individuals are exploited |
| delisted and only made available through the OTC | | | | through the chop stock scheme. |
| quotation services. | | | | This is why I think it is vital you work with a well-known |
| This means the penny stocks online you find and trade | | | | and reputable broker. Stick with the big and long-time |
| via the OTC Market do not have the same public data | | | | brokers like Fidelity and Schwab. Be very wary of |
| and verifiable financials as stocks on the major | | | | small specialty brokers who aggressively seek your |
| exchanges. This makes them highly susceptible to | | | | business online. |