(WSYR-TV) — Trading in penny stocks, stocks that trade for less than a dollar, has increasingly become a trend. Mainly because many brokerage houses have stopped charging trading fees on stocks. And when I say taking off…well look at this chart.
This chart goes back to January of 2019 and you can see, on the far left, the volume of monthly trading in penny stocks. As 2020 progresses, there’s a slight uptick in February, and then varies throughout the rest of the year…until December. There was a huge volume of penny stocks being traded.
Now here’s why I think this is dangerous. It can seem like a quick way to make money but it’s also a very easy spot to get scammed with something called a “pump and dump” scheme. The scheme goes something like this: somebody buys penny stocks for very little money, then they go on a website or chatroom and promote how great the stock is. This gets people to buy into the stock, driving up the price, and that somebody is there to sell their stock to you.
It’s really an area that can have that kind of abuse and is often something that does not work well for people who are trading it. So even if it has worked for you for the last few months, be very very careful. Because what goes up can often come down.