There are a variety of ways that scammers are using to prey on penny stock investors.
If you’re not new to the game and have learned most of the techniques and tricks that are there to be learned. Then you may be safe from them; however, but if you’re a newbie who’s just starting to get your feet wet, I’d suggest you take a lot of precautions.
Who exactly are the promoters?
Anyone who’s getting paid or getting anything in return for promoting a penny stock is considered to be a promoter.
A promoter doesn’t necessarily have to be one person; it can be an entire company for that matter. As long as there’s a compensation for taking the words to the public it’s called promoting.
It wouldn’t be a bad thing to promote a stock either, but in this case, it’s being done illegally as they’re lying to potential buyers with the intention to make themselves rich.
How do those promoters promote penny stocks?
One of the most used methods is through newsletters. Any time you’re being promised that a penny stock is going to jump from point A to point B should raise some red flags. That’s one of their convincing ways to get you to buy shares from a penny stock that has no good future in reality.
They don’t have anything to lose while you’re losing your hard earned money. Even better for them, some of them make huge profits at the expense of your loss.
It’s also in a case like this you’ll find a pump and dump scheme. If you don’t know what’s that, it’s a scheme where promoters are raising capital by artificially inflate a stock’s price.
When that is done, they make huge profits. But if you’re an experienced penny stock trader you can make some profits from that as well. Though their action is illegal that doesn’t mean you can’t use it to your advantage as long as you know what you’re doing.
They can promote their stocks on newspapers, online ads, through other people, and in many other different ways. With that being said, you have to be extremely careful not to be preyed on by those scammers as you’re investing in penny stocks.
How to recognize a penny stock promoter
Always look for the fine prints at the very bottom of their newsletters. They know you will not be interested in reading their disclaimers, it’s a requirement for them to have one, though. But from their disclaimers, you may be able to figure out whether or not they’re plain scammers.
If you look very close at the company being promoted you’ll realize the promises are false. Look at the management system to see who’s behind the company. Financially speaking some of those companies are usually on the verge of bankruptcy.
Just because you see a company releases good news doesn’t mean its price or value will increase. Good news doesn’t affect all companies, look for the trends before you make your prediction. Don’t let scammers scam you by telling you there are great news and huge profits will be made.
How to know the authentic penny stock researchers
If you could conduct your own research you’d definitely be safer, but if you can’t you may rely somewhat on others’ researches. But how can you distinguish those researchers from the promoters?
Although it’s not something that can be easily done that doesn’t mean it’s not possible because there are some trustworthy researchers out there. As long as you know how to spot them you should be in good hands.
They will never spam your inbox because you’re the one who’s in need, not the other way around. A real researcher would have a positively skewed trend as compare to a promoter.
Where a promoter would promise you big returns, a trustworthy researcher would let you make your own decision, no pressure would be felt. They usually point out everything you need to know about the stock, but they’d give you the chance to decide yourself.
If you confirm the information given to you by a researcher you would be very likely to find that information to be true. One of the best ways is to check the company’s financial statement and their disclosure.
The more disclosure they have the better it is, but if you see and feel like they don’t want to fully disclose themselves, then you should think twice. However, though, most trustworthy researchers will make sure that you’re being given correct information.
The best way to pick a penny stock to trade is to conduct your own research. Unfortunately, not everyone is able to do so correctly as it requires tons of education about the market.
I do think it’s pretty fair, knowing that you’ll have a greater chance to make some profits if you were to trade on your own or take your chance with the other free newsletters. Always trade with lots of precautions as it’s very easy to blow out your capital. Good luck and happy trading!