Before you invest in penny energy stocks, you need to be aware of the potential for several unexpected consequences. Penny energy stocks have gained market popularity recently, mainly those owned by large oil, gasoline, and renewable energy corporations. However, as with many penny stocks, investment is generally highly-speculative and risky. While many traders like yourself have experienced profits trading penny stocks, the potential for significant consequences still exists. Continue reading this post to learn the worst unexpected consequences from penny energy stocks investment.
Victimized By Scams
Penny stock investment leaves you the potential to be a victim of a scam. Most commonly associated with penny stocks are pump-and-dump scams. These occur when promoters encourage inexperienced investors to purchase large amounts of shares of essentially worthless stock. When the stock has reached a specific volume, promoters flip their shares for a tremendous profit. However, there are many lesser-known schemes regarding penny energy shares as well. You can be a victimized by short and distort, reverse merger, or mining scams as well. Very common recently, is becoming the ‘guru scam’ since people fall for it so easily. Traders investing in penny stocks in the energy field can potentially be victimized by scams.
Face Different Broker Regulations
Penny energy stock investors may also face different broker regulations. In most cases, these unique regulations do not work in your favor. While traditionally public-traded stocks are offered on well-known stocks markets, many penny stock options are not. Instead, they are offered on alternate markets with less-stringent requirements, listing fees, and reporting regulations. In these markets, brokers have more flexibility to set and charge higher commissions. While traditional markets allow you to set specific trading requirements, many penny stock brokers do not. The most valuable of all special requests is likely stop-losses. This ensures that you do not lose more than your original investment amount if shares decline in value. Unfortunately, with especially unstable volatility, these requests would be especially useful for penny stocks. Investing in penny energy stocks may be accompanied by different unfavorable broker regulations.
Negative Impacts Of Volatility
Investing in penny energy stocks may cause you to incur negative impacts of volatility. Penny stocks are some of the most volatile financial instruments traded. When prices significantly rise due to unstable volatility, it greatly increases your portfolio value. However, if shares quickly fall in value, the entire value of your trading account can quickly be reduced. Without stop-losses and other protections, you could potentially lose your entire investment. If shares have recently seen a significant increase in value, but have been rather unstable for much of the previous periods, reconsider your investment. Consider the negative impacts of volatility as you plan to invest in penny stocks.
Slow Growth Through Low Purchase Volume
Trading penny energy stocks also may cause slow growth through a low volume of share purchases. Large publicly-traded companies on the stock market trade and exchanges millions of shares daily. Constant purchasing, trading, or exchanges leads the price per share to frequently change, and in many cases grow. Penny stocks do not experience the same volume being traded. Most penny energy shares only trade a few thousand shares every day. Less active shares and companies leave you less potential to grow your portfolio and profit. Before you invest in penny energy stocks be aware how slow growth may harm your profitability.
Investment in Poor Quality Or Unethical Companies
Many traders that invest in penny energy stocks are contributing to poor quality or even unethical companies. The majority of penny stocks in general are traded by lesser-quality companies. Some companies only result to trading penny stocks when their financial position is in disrepair and operations are unprofitable. As many companies devote their core competencies around being ‘green’, or environmentally-sustainable, many traders want to distance themselves from large oil and gasoline companies. Therefore, if you do choose to invest in penny energy stocks, you may want to consider those offered by renewable energy corporations. Before trading penny stocks, be aware they may lead to investment in poor quality or even unethical companies.
Despite their high valuations and potential for profits, there are several unexpected consequences of investing in penny energy stocks. Questionably the largest is being the potential victim of a scam. Penny energy stocks are often accompanied by different broker regulations that often do not work in your favor. Investment is also accompanied by ownership of extremely volatile shares. You may face slow growth on your shares due to low purchasing volumes. Other shares may lead you to invest in poor quality or unethical companies. Consider the points mentioned above if you are interested in the worst unexpected consequences from penny energy stocks investment.