Cheap stocks, also known as Cent stocks, are ordinary shares of small public companies traded at low prices per share. In the United States, the US Securities and Exchange Commission defines the cheap stock as a stock trading below $ 5 per share, unlisted on the national stock exchange and failing to meet other specific criteria. In the UK, stocks with prices below £ 1 are called cheap stocks. Prosecutors and the FBI say fraud is widespread in the cheap stock market. Although cheap stock companies are small, they are fooled by frauds of tens of millions of dollars. In the case of many cheap stocks, low market price inevitably leads to lower market value. These stocks can be highly volatile and manipulated by marketers. These stocks pose a serious risk to investors who are often attracted in the hope of making big and fast profits. Cheap stocks in the United States are often traded without recommendations on the billboard or pink sheets. In the United States, FINRA has specific rules for identifying and regulating the sale of cheap shares.
Lots of cheap stocks, especially those that are trading at a fraction of a cent, are trading slightly. It can become a target for promoters and manipulators. The manipulators buy large amounts of shares, and then inflate their price by misleading false positive data and misleading. In the most sophisticated versions of this fraud, individuals or organizations buy millions of shares, then use news sites, chat rooms, fake press releases, or e-mail to increase interest in stocks. Investor is convinced to buy shares quickly. When you buy this price will push the stock up, and this increase tempts more people to buy stocks as well.
The difference between cheap stocks and expensive stocks
There is a misconception among many traders that believing that a low-priced company is “cheap” and that its high price is “expensive” is not true, because the price itself does not mean much, The management of the company to grant shares free of charge decreases the share price. In other markets, the company divides the shares, changing the market price from $ 100 to $ 50, for example, and the stock is “cheaper” than before. As the company may reduce its capital or reverse segmentation, the share price will rise If the stock market price is not a measure of the attractiveness of the stock or not, many traders still behave at the apparent price, not the total market price of the company taking into consideration the number of shares. The importance of the company’s market price, not the price of the stock, is indicative of the value given to the company by the masses of investors and traders, and undoubtedly gives an indication of the people’s view of the company in addition to its assets and liabilities and the growth of its sales and future in general.
Many speculators in US cents, known as cheap stocks, misjudge the amount of profit and loss resulting from the trading of these shares. For example, a person may buy shares at 11 cents a share, and the value of the stock, perhaps the same day, may fall to eight cents. Here the person forgets that the loss in this case actually increases to 27 per cent, which is very high by all standards, but it appears that the trader in the shares of cents does not realize this point, believed to be just a drop of only three cents, but! In order for the stock to return to its previous price of 11 cents, it is not enough to rise by 27 per cent, but should rise by 37 per cent, and when a 50 per cent share falls, it must rise by 100 per cent to return to its previous price.
How to buy Cheap Stocks ?
Like any other stock you would buy, you can purchase shares of a cheap stock through your normal stockbroker — regardless of whether or not it’s listed on a major exchange.
While cheap stocks listed on exchanges like NYSE and NASDAQ aren’t typically considered “penny stocks” per se, they can afford a lot of the benefits of penny stocks without quite so much risk. These exchanges have strict listing requirements, and while they might not allow for as much of an upside as “true” penny stocks can, they tend to be more reliable. More often, though, penny stocks trade on listing services like OTCBB and Pink Sheets.
Over-the-Counter Bulletin Board, or OTCBB, is a quotation. Unlike Pink Sheets, which is just a quotation publisher, OTCBB maintains listing requirements (though they’re less stringent than those of an exchange). For this reason, OTCBB has a little bit of added legitimacy.
Pink Sheets is a system that provides investors with quotation information on stocks that are registered with it. Unlike OTCBB, however, Pink Sheets isn’t registered with the SEC and doesn’t enforce any listing requirements. Bottom Line: Pink Sheets stocks are risky.