5 Common Risks and Scams of Investing in Penny Stocks

Penny stocks come with high risks though with the potential for above-average returns. As a result, investors should be mindful of how they invest in penny stocks because they can lead to financial ruin quickly.

1

Pump and dump penny stock scams happen regularly. Penny stock promoters, or people who are responsible for selling the stock, will buy shares of penny stocks and inflate its price.

Pump and Dump

2

Short and distort is the mirror image of pump and dump. It works by shorting the stock on Robinhood or a Robinhood alternative (usually in a bull market) and then releasing false information to send the price plummeting.

Short and Distort

3

Reverse Merger Deception Scams usually happen when somebody takes over as CEO of a struggling firm and looks for a way to right the ship through shady means.

Reverse Merger Deceptions

4

A “Guru” scam works by having an investor pay someone for tips on what stocks they should buy in order to profit off their followers’ investment decisions.

Guru Scam

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