Penny Stocks Online - You Must Avoid Fraud to Profit With Penny Stocks Online

When dabbling in penny stocks online, the first and most vital lesson you must learn is that the penny stock market is fraught with peril and rampant with fraud. You must learn how to steer clear of this fraud to secure your stock trading success.

Penny Stocks Online Fraud Scheme #1: Pump and Dump

The first micro cap fraud scheme you must familiarize yourself with is the pump and dump. The basic concept of the pump and dump is that a group of well-connected individuals select a relatively obscure penny stock then hype it so that novice investors buy it up fast. This causes the value of the stock to be temporarily inflated. As soon as the value inflates, the party responsible for the hype sells it off for profit, leaving the poor novices with a crashing stock that is hard to sell (because penny stocks lack liquidity).

Common places to find people exploiting the pump and dump are so-called penny stock newsletters as well as within stock trading forums oriented around penny stocks online. The moral of the story is this: don't ever take someone else's word for the value and potential of a stock. More often than not, they're trying to exploit you. Learn to do your own research and make your own decisions.

Penny Stocks Online Fraud Scheme #2: Chop Stocks

The other scheme you need to be aware of is the chop stock. Chop stocks are when unscrupulous brokers and stock promoters get together to buy ultra low value stocks at an even further discounted price, then hard sell you the stock at a much higher price. Unfortunately, many naive individuals are exploited through the chop stock scheme.

This is why I think it is vital you work with a well-known and reputable broker. Stick with the big and long-time brokers like Fidelity and Schwab. Be very wary of small specialty brokers who aggressively seek your business online.

So I hope you now understand how vital it is for you to not let yourself become a sucker when wading into the shark-infested waters of penny stocks online. You can make money in this business - you really can. You just have to be responsible and cautious as you begin your penny stock studies.