Penny stocks are very cheap, usually with stocks priced at less than $5. These stocks are offered through Pink Sheets and Over the Counter Bulletin Board (otcbb). Pink Sheets are not regulated by SEC, and the companies listed are usually startup companies who have not yet grown to be publicly-listed. Pink Sheets do not require the companies to submit sufficient requirements that other exchange markets require, so it can be a haven for potential scammers.

For potential investors who want to try dealing in Pink Sheets, it is advised that you exercise caution when dealing with companies. I am not trying to discourage you from investing in Pink Sheets; people are actually gaining financial wealth through trading of penny stocks. The good thing about this is that you might not know that the company that you are investing in can be the next big thing.

The downside is that you really would have no access to company information because they are not required to submit any requirements with Pink Sheets; all they have to do is to have a market maker to facilitate the quoting of their share prices. The key in combating penny stocks fraud is to research about the company that you will be investing in. Get to know the background of the company and all the other important financial information.

To get to know more about penny stock fraud, you should know how it works and operates so that when you are faced with it, you can make important financial decisions.

You can look into different sources of information like your broker, investment manuals and newsletters, prospectus and trade confirmations. Your broker will be the best source of information because he will know the ins and outs of penny stock trading. Your broker will be your guide, especially if you are just starting to invest.

Investment manuals and newsletters will enable you to be knowledgeable in all the different issues when it comes to stocks and investments. Manuals such as Standard's and Poor's and Moody's will offer current information about stocks, as well as penny stocks.

On the other hand, a prospectus is a comprehensive guide to IPOs. If you want to know more about the basics of stocks, you can read the prospectus. Before you delve in penny stocks trading, make sure you know a lot about the subject to avoid falling prey to the different scams around.

A trade confirmation will be presented by the broker to the investor once the whole transaction is carried out. It will state how many shares were issued, basic information and whether the transaction was made through an agency or principal. For pink sheets and OTCBB, the trade confirmation will also state the bid and ask price at the time of the transaction.

Another way to protect yourself against penny stocks fraud is to be on the lookout for different warning signs like: unauthorized transactions, mismarked and error filled trade confirmations and high pressure sales techniques. If you feel that something is fishy with the transaction or the company, it is better to exercise more caution and be extra vigilant.