In the United States, penny stocks are types of common stocks that can be traded for less than five dollars per share and are traded OTC or over the counter via quotation services like Pink Sheets or OTC Bulletin Board. Although some believe that trading penny stocks is not profitable, you should realize that there are share volumes traded regularly, which can amount to hundreds of millions for sub-penny stocks. It’s vital for you to take extra caution when trading in this platform, since accurate and precise information on penny stock firms can be difficult to come by and a penny stock can be effortlessly manipulated.
Penny Stock Market Basics
In the U.S. financial trading markets, the term penny stock normally delineates stock trading that is not included on the major exchanges listings, thus it is frequently considered depreciatory. On the other hand, penny shares are stocks and shares from small cap companies, known as enterprises with lower market capitalization.
Finding Profitable Penny Stocks
If you are searching for the best penny stocks, it’s essential that you stay away from being lured to the appeal of a penny stock because of its low price and deemed potential for rapid growth. Both of these factors can come into sight if the stock is being advertised or promoted. Without adequate knowledge, you can end up dealing with severe loss. In view of that, the SEC cautions that penny stocks are categorized as high risk investments and new investors like you should be sentient to the risks involved. The perils of trading penny stocks include lack of financial reporting, limited liquidity, and fraud.
You should also realize that abrupt alterations in the demand or supply of penny stocks can result to unpredictability in the stock prices, up or down. When there is no liquidity, it might be extremely complicated to sell stocks, specifically if there are no investors to buy penny stocks that day.
Avoiding Scams
The Securities and Exchange Commission warns you about the message boards online, where you might come across with scammers or fraudsters claiming to be unprejudiced investors who have diligently performed research but are actually company insiders. In addition, a person or a small team of speculators can formulate the scene of a large interest in a particular stock and present it as hot penny stocks by simply creating a huge number of aliases, while preventing insightful opponents and critics of such offerings.
You should inhibit from visiting websites that are featuring glowing press releases regarding their financial stability or some fresh products or developments. While you find it informative to join chat rooms and forums, you should prevent yourself from buying a specific stock instantly or selling even if the price going down. The typical outcome of these shams is, when the fraudsters behind the proposal sell all of their shares at the highest price possible and discontinue hyping such stock, the price suddenly goes down, leaving other investors with nothing.
Trading penny stocks is not just about the process of buying and selling of penny shares, it is also about learning the stock market and trading with proper knowledge.
