Why Are Penny Stocks Risky?

Penny stocks are often seen as an attractive option for novice investors. While penny stocks do have the potential to generate returns, you may be surprised to learn just how risky these investment opportunities are. 

The higher the risk, the more likely you are to lose money on your investment. And when your trusted stockbroker made a mistake or decision that ultimately causes you to suffer massive losses, you may be able to do something about it. 

Continue reading to learn more about what penny stocks are, why they are considered to be a high-risk investment opportunity and when to call a stocks loss lawyer

More About Penny Stocks

Also commonly referred to as micro caps, penny stocks are a type of high-risk security that trade for a low share price. The U.S. Securities and Exchange Commission (SEC) considers any stock that is sold for less than $5 per share to be a penny stock.

Investors are attracted to penny stocks because of the major stock market success stories like Amazon and Walmart whose stock has appreciated in value. But even these stocks started out closer to $20 per share in their early days of trading. 

Why Are Penny Stocks a High-Risk Investment?

Penny stocks may be cheap, but when you’re buying them in massive quantities to generate your highest return, the risk becomes significant. There are many reasons why penny stocks are considered risky

But a lack of available information about the company and its financial records, its lack of financial data, and the fact that penny stocks are often illiquid make them one of the riskiest securities an investor can invest in. 

If your broker failed to inform you of the risk, due their due diligence, or otherwise caused you to suffer significant stock losses, you may be able to hold them accountable in arbitration proceedings before the Financial Industry Regulatory Authority (FINRA).

Contact a Top Investment Loss Lawyer

If your financial advisor or stockbroker recommended you invest a considerable amount of money in penny stocks without disclosing the risks, you may be able to recover your stock losses and hold your broker accountable. 

Contact an investment loss lawyer at Wolper Law Firm, P.A. to further discuss your options for financial recovery. Call our office at 800.931.8452 or complete the quick contact form to schedule your free, no-obligation case review. 

Attorney Matthew Wolper

Attorney Matthew WolperMatt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks. [Attorney Bio]