Investing in penny stocks can be lucrative, but it can also be risky, which is why many traders avoid penny stocks when looking for cheap stocks to buy.
The vast majority of penny stocks originate from untested small companies that don’t have any past performance to accurately judge their performance on the market.
Alongside having few shares, several penny stocks come from companies with little to no track record. Even if they look good on paper, these ventures have yet to prove themselves in the real world.
Although fraud on NASDAQ or the NYSE is relatively rare due to stringent regulations that a stock must follow, scams are much more prevalent on the OTC.