Companies performing well in the market are not just born, they are actually made. In fact, they have utilized all their resources and worked their way from simple beginnings and through ranks. Sadly, there are investors who think that searching for the next “big thing” delineates hunting penny stocks in hopes of procuring the most lucrative investments. Most of the time, this method will prove to be inefficient without the help of a penny stock advisor.
Understanding Penny Stocks
The terms “micro cap stocks” and “penny stocks” are used interchangeably. Theoretically, micro cap stocks are categorized as such depending on their market capitalizations, while penny stocks are weighed in terms of their prices. While the definitions vary, generally, a stock enclosing market capitalization between $50 and $300 million is recognized as a micro cap, and less than $50 million is called a nano-cap.
Based on the information released by the Securities & Exchange Commission (SEC) a stock valued under $5 is a penny stock. Yet again, the definitions may vary, since there are penny stocks with cut-off point of $3, though others only invest in penny stocks with value of less than $1. In conclusion, any stock that can be traded via over-the-counter bulletin board (OTCBB) or pink sheets may be called a penny stock.
One of the best stock tips to remember that you may learn from a stock market advisor is that micro/penny stocks are riskier to trade than regular stocks.
Generating Fortune with a Penny
Penny stock advisors will help you learn about the factors that make penny stocks very risky. The following are the four major factors that make these investments or securities riskier than blue chip stocks:
Insufficient Information to the Investors
The key factor in any lucrative investing is gathering sufficient and tangible information so you can make informed decisions. Information is more complex to acquire for micro cap stocks. Companies seen on the pink sheets are not necessitated to file with the SEC and are therefore not as publicly regulated or scrutinized as the stocks listed on the Nasdaq and on the New York Stock Exchange. In addition, the information available most of the time does not come from reliable sources.
No Minimum Qualifications
The reason why a penny stock broker is helpful for your venture is because of the fact that stocks on the pink sheets and OTCBB don’t need to meet any minimum standard requirements to stay on the exchange. Once the firm can no longer stay on its position on one of the large exchanges, the enterprise switches to one of the smaller exchanges. Although the OTCBB does not demand companies to file documentations with the SEC on a timely manner, the pink sheets don’t implement such requirement. Note that minimum standards are considered as a safety cushion for many investors and a solid benchmark for several companies.
Majority of the companies known as micro cap stocks are either approaching bankruptcy or are just newly formed. In general, these companies come with poor track records and at times none at all. Such insufficient information makes it complex to establish the potential of the stock in generating profits.
It is important that you get reliable information about where to buy penny stocks. This is because when stocks don’t have high liquidity, two quandaries take place. First, there is a huge potential that you will fail to sell the stock. When there is low level of liquidity, it may be complicated to look for a buyer for a specific stock, and you may be obliged to lower your price until potential buyers find it attractive. Second, liquidity levels that are low grant opportunities for many traders to control the prices of the stock, which is carried out in several different ways – the simplest strategy is to purchase huge amounts of stocks, market and hype them up, and then sell them to investors that find your stocks lucrative.
Scams and Traps
The best stock advisor will educate you how to analyze stocks and avoid penny-baited scams and traps. Penny stocks have been in bad light in the SEC for quite some time due to lack of available data as well as poor liquidity.
Thus, make sure to consult a penny stock advisor to learn about several different ways in which these scams are employed to separate you from your hard-earned money.