A Beginners Guide to Penny Stock Investing

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Anyone looking to make money by trading may like the idea of ​​penny stocks. They are different from longer term trading of established companies and can be risky, but also very good investments for smart investors. A surprising number of people do not understand the concept of penny stocks and may have an incorrect opinion based on the name.

Rather than investing your money in penny stocks without fully understanding what you are doing, it is important to understand what they are. In this article, we will look at the basics so that you can decide if it is worth looking at this unique type of trading.

A definition for Penny Shares

Penny's shares are the well-known title, for what is more officially called micro-capitalization. In its simplest terms, it is a cheap stock, a stock that trades at a lower value than high end blue chip items.

In the United States, the SEC describes micro-capitalization as a stock that trades at a unit value less than $ 5.00. This is an official definition, but there are other looser definitions, which are used by traders and stockbrokers, depending on their place on the stock market.

If you're talking to a penny stocks broker or investor, it could be stocks whose value, per unit, is less than a fraction of a hundred. You can also take a look at stocks that are traded in more obscure markets, with caps of $ 25-50 million, or less, depending on the definition applied.

In fact, you don't need to be in the U.S. to talk about penny stocks because they have parallels, all over the world, where low cost stocks and stocks work, on markets that facilitate their trade. The most important stocks can continue to be massive, top-notch stocks, as an organization grows and the markets in which they trade may change over time.

As the definitions used are relatively flexible, in many circumstances, you will often find that there are contradictions to be discovered, in the way these parts are defined. For example, you can have stocks that trade in obscure markets, with high unit costs. You may also find companies with large market capitalizations that trade at costs well below $ 5.00 per share.

Which markets are trading in Penny Stocks?

Penny shares can be traded on a wide variety of markets. In the U.S., it could involve everything from NYSE and NASDAQ to OTC-BB and Pink Sheets. Penny's stocks generally tend to be found on OTC-BB and Pink Sheets, as larger exchanges are prone to pay attention to companies with larger market capitalizations.

Small cap stocks are typically found where the laws and listing fees are lower. Pink Sheets have fewer restrictions than OTC-BB, so you'll find more of them there. You will discover that some brokers prefer not to deal with Pink Sheets, but you will find many OTC-BB brokers, with a full list of available OTC stocks.

This should be enough to get you started, but be aware that trading these stocks will require further reading and implementation if you intend to become an active trader. Of course, there can be a lot of risks and you have to follow a proven system if you hope to make it work.


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