Exactly what are penny stocks? In a nutshell, penny stocks are categorized by the SEC as any stock currently trading for under $5 per ...
Exactly what are penny stocks? In a nutshell, penny stocks are categorized by the SEC as any stock currently trading for under $5 per share. Many investors use a different scale to measure and consider “microcap” stocks or penny stocks as any stock trading for less than $2 per share.
Some individuals and organizations consider all stocks traded in certain markets like the OTC-BB, or the “Pink Sheets” to be penny stocks. Some of the markets involved in trading penny stocks include:
- Over The Counter (OTC)
- Over The Counter Bulletin Board (OTC-BB)
- Pink Sheets
- Canadian Venture Exchange (CDNX)
- NASDAQ Small Cap
New investors might want to learn the basics of buying and selling with small cap, or, penny stocks because they are low priced investments. Whatever the reason, the truth is, with calculated analysis, skill and experience, penny stocks can provide nice profits to the savvy stock market trader.
Trading penny stocks is really quite simple, and the actual trading takes place the same exact way as it does with large cap, or, blue chip stocks. The first thing you need to do is decide what broker or online trading company you will work with.
Brokers buy and sell stocks for you based on your instructions and they earn a commission for their service. In the Internet Age it is quite simple for anyone to invest in the stock market buy using an online brokerage firm.
Much like stocks, not all brokers are created equal. Do your homework and pay attention to the fees charged for the broker’s service. Questions you might ask yourself include; ”How much money will you have to pay to make each trade?” “What kind of investment tools and advice can I expect?” “Is there a minimum trade amount, or a minimum monthly balance I must maintain?” “Does this broker offer access to penny stocks and trades on microcap markets like Pink Sheets and OTC-BB?”
There are basically two types of brokers:
1. Discount brokers are less expensive and are found in the online trading accounts. Examples of discount brokers you may have heard of:
-eTrade
-Scottrade
-Sharebuilder
-Zecco
2. Full Service brokers provide more personalized service and they will actually provide you with investment ideas and advice. Their fees are much higher and they are often utilized by experienced investors with large portfolios. Examples of full service brokers you may be familiar with:
-Merrill Lynch
-Dean Witter
-Goldman Sachs
-JP Morgan
For those investors or traders who just want to execute trades without the extra services, discount brokers are the way to go.
So, are you ready to get started investing in microcaps and penny stocks? There are really only three steps you need to take in order to get started trading penny stocks.
1. find a broker
2. do your research (due diligence)
3. buy your first shares of stock
That’s it my friend. As with any investment, never invest more in any stock than you can afford to lose. ALWAYS do your homework and never buy without first performing due diligence and conducting your own research on the company you are buying shares in. Pennystocks are susceptible to price manipulation and unsuspecting investors have become victim to so-called “pump and dump” scams.
Don’t let yourself fall victim to a pump and dump scam. A pump-and-dump scam means someone is pumping up the price of a penny stock, usually via mass email messages, or text alerts urging investors or traders to buy a specific stock. . . and then as demand increases and the price goes up, the pump-and-dump scammer sells or dumps their shares. Once the hype is over and the dumping of the stock has taken place, the investors who were scammed are left with a worthless penny stock by the time they realize what happened.
1 comment:
It isn't common for such stocks to be promoted by people who have been paid to do just that. Perhaps, you have received spam emails that may sound too good to be true, which may encourage you to invest in a particular penny stock. Take in mind those successful companies these days mostly did not start out through penny stocks.
The usual scenario happening that enables bribes and scams is that a company may buy some stock and then spread emails to tell people that a certain stock is doing well in the market. A lot of readers would then respond to this by investing in stocks, causing the price to dramatically shoot up due to supply and demand. After this, the scammer may sell his or her share for a huge amount before the price dramatically goes down again leaving many investors to lose a lot of money.
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