Penny Stocks are stocks that are valued at less than one dollar – they are so named penny stocks for this reason.
Penny stocks are usually stocks of small company’s that trade for less than one dollar, or sometimes less than five dollars. The majority of penny stocks trade on the over-the-counter bulletin board, which is an electronic trading platform that allows traders to do many things and obtain prices, including the pricing and trading of penny stocks. Penny stocks however are far from a risk-free investment, and for this reason there are not a huge amount of stock brokers that offer their customers a facility on which to purchase penny stocks.
A company may be selling off their stocks for as low prices as this for a number of reasons, that unfortunately tend not to be positive. A company that are selling the stocks for extremely low prices are often in a bad financial position and that they are on route to run out of money, or are not profiting whatsoever. A penny stock is often the final cry of help from a company that is failing considerably. For the aforementioned reasons, investing in Penny stocks is a risky business, but as with anything and any other investments, can be rewarding if you are lucky, or if you make the correct investment.
It is important to remember that not all brokerages and people for that matter consider any stocks to be the same thing – in other words, the definition of a ‘Penny Stock’ is a varied one. Based on the name and common sense, a lot of people assume that penny stocks are referred to those stocks that trade for pennies, i.e. less than $1 or £1! This however is not always the case!
Penny stocks are defined as those stocks that are priced at less than $5. Penny stocks usually trade on what are known as pink sheets, or the OTC bulletin board. This however in itself presents its own risks, since companies that register as a pink sheet stock are not required to register with the securities and exchange commission – the agency that exists in order to provide protection for investors, and ensure that the markets are fair and legal. This could mean that there are ‘stocks’ on the pink sheets and on the OTC bulletin board that exist not for normal purposes, but instead for fraudulent purposes.
When looking at pink sheets stocks, one should remember that scammers try and take advantage of newer, less experienced people by encouraging them to invest in a stock that is never going to give them any sort of return on their money. There are a huge number of penny stock scams that unfortunately exist, and all take place extremely regularly causing innocent investors to suffer all of the time. These scams include the ‘reverse merger,’ as well as mining scams and overseas scams.
Once you have informed yourself of the various types of scam that exist, you should go about learning how to steer clear of them in the best way possible. For example, it is important to be able to identify the differences between a promoter and a researcher. I promote may outsource professional writers in order to write lies about their stocks in order to make them look good and to be a more desirable investment. If you are going to begin investing in penny stocks regularly and are hoping to make any sort of return from it, it is essential that you learn the differences and how to spot which are which. Another way to attempt to avoid as many scams as possible is to question the credibility of the company that you are considering investing in itself! Largely, for a company to end up being a successful one, they must have high quality management in place – this rule applies to all types of company, blue chip or penny stock. In other words, before investing in a company take a look at the history of its management, and look for any significant gains or losses, as well as any trouble it may have been in at any time at all.
So, you have made up your mind and you are going to start purchasing penny stocks! Great! When you are looking at what penny stocks to buy, you are inevitably going to be searching and hoping to find the one that will gain you the best return possible. In order to do this, you should learn about the stock and make a judgement on whether or not you believe the company that you’re investing and could have any potential and future, based upon the information that it has provided. There are a few common rules that, should you want to be as sensible as possible when investing, you should follow. It’s important to not invest all of your capital into one stock, no matter how strong you believe it to be. You should also know how to identify a good time or even the best time to sell your stock. Penny stocks do not tend to be looked at as a sound long term investment – for this reason you should ensure that you know the correct time to get rid of your stock, and at what price. You should also always be sure to seek out the best stocks that you can from the markets. Penny stocks are largely a gamble, some may provide a massive return one day, while a lot of others will represent a loss. Obviously, finding the best penny stocks to invest in is not exactly easy, otherwise everyone would be doing it! You should look out for companies that are starting out with good potential, such as good management structure or companies that are going to be trading in a very lucrative area of the market. If you take notice of these things, you may not find the absolute best possible Investments, but you will certainly be putting yourself at a better chance of doing so.