3 Reasons To Avoid Penny Stocks

For starters, the vast majority of tiny, unprofitable companies are such ridiculous long shots they don't even merit your attention. Other than that...

• Most companies offering penny stocks have little if anything in the way of profits, not to mention the first prerequisite: sales.
• Secondly, you could drive a cement mixer through the bid/ask spread on many of these shares. If a stock is offered at 30 cents and bid at 24 cents, for instance, you're down 20% as soon as you get your trade confirmation. (And that's before commissions.)
• Thirdly, penny stocks are thinly traded and easily manipulated.

You may buy a penny stock and see it zip higher, but then have trouble getting out. It's pretty disheartening to know you can drive down the price of a stock simply by selling your shares at market.

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