You may have invested in the so called penny stocks.  It is important for you to be aware of the disadvantages of these penny stocks, so that you can protect yourself as an investor.  Many people make the mistake of investing in these stocks thinking that they will be able to make a quick return.  However, in reality, you will end up losing huge amounts of money, as these types of stocks are easily manipulated and moreover all kinds of frauds can take place.  Although, not every penny stock can be thought as fraudulent, the chances of you having a problem due to a misconception are very high with penny stocks.

-       The biggest method of fraud is by disinformation.  It is very hard to get information about these stocks, as these stocks are not bound by the information laws and regulations that apply to normal stocks that are found in the New York Stock Exchange or in NASDAQ.  Hence, you have no way of knowing whether these stocks will be able to make money, since you won’t have any reliable history to analyze upon.

-       In addition, you won’t be informed about any top management changes or any top level decisions as these companies do not have to inform the public.  Thus, you won’t have the necessary information that can help you to make the right call about these stocks. 

-       You can not find information about their total financial assets, as well as their financial return ratios and quotients.

-       They are subject to manipulation and in many cases; the executives of these companies will use fraudulent and manipulative media coverage from local TV stations, radios and other media outlets.  You will watch these interviews and you will think that these stocks will be able to show great performance.  Hence, you will end up buying various penny stocks only to see that you have lost a great deal of money.

-       Email spamming is the most common fraud method that these companies use.  Millions of spam email messages are sent to many investors in the hope that some of them will fraudulently believe that these stocks will gain in value.  In many cases, these types of spam email tactics are utilized, so that the price manipulation of these stocks takes place. When many investors inquire about a certain penny stock, then inadvertently the prices will go up due to the illusion of demand.

-       In many cases, the prices of these stocks are manipulated and when you are trying to sell your stocks, you will quickly see that the volume of trade is very thin.  This will cause you to have frozen assets, since you may not be able to sell your stocks due to low demand.  Hence, you will be forced to sell your stocks with a low price and the manipulators will buy your stocks at even a lower price from you.

-       Sometimes these types of stocks are used by black market dealers to clean dirty and illegal money.