If you are interested in trading penny stocks, then you need to know how to buy penny stocks and so many other things. Penny stocks are small-cap stocks that you can get at a low price. If you are interested in becoming an investor in the world of stock trading, then trading penny stocks might be the thing for you.
However, before you start jumping into the penny stock trading business, there is a lot of things that you need to know first. You do not want to jump into any business without knowing any deal about it, do you? You need to do your research first. That way, you will be ready and prepared for anything that might come into your way.
Well, with all of that said, we are going to tell you everything there is to know about trading penny stocks. All you need to do is sit back, relax, and absorb as much information as you can.
Before we go on and on about how to look for penny stocks, let’s just get to the basics first. And the most basic about anything is its definition.
In order to truly understand penny stocks, you need to know how to define them. And luckily for you, we have all of the answers that you need.
Penny stocks are low-priced stocks that you can invest your money on in the trading market. They are common shares of public companies that are small. These public companies usually trade at quite low prices per share initially.
According to the Securities and Exchange Commission (SEC) in the United States, a penny stock is a term that refers to stocks from small companies that do their trading initially less than $5 per share. That is why penny stocks are also known as micro-cap stocks, nano-cap stocks, Over the Counter (OTC) stocks, or small-cap stocks.
Over the Counter Stocks
An interesting thing about penny stocks is the fact that they are also known as Over the Counter stocks. Well, there is actually a good and valid reason why penny stocks are called Over the Counter stocks. And that reason is the fact that penny stocks are usually traded in over the counter exchanges.
Over the counter exchanges refer to stock exchanges that happen in the over the counter market. Penny stocks are listed in over the counter exchanges such as the OTC Bulletin Board or the OTC Link LLC.
The OTC Bulletin Board is a facility owned by the Financial Industry Regulatory Authority (FINRA), Inc. which is a private self-regulated organization. The OTC Link LLC is owned by the OTC Markets Group, Inc. This is a group that is formerly known as pink sheets. That is why you will often hear the term pink sheets penny stocks together.
Other than in the over the counter markets, penny stocks can also trade on a stock exchange or securities exchange. A stock exchange is a facility where every magic in the stock world happens. It is a place where both stockbrokers and traders can buy and sell securities such as bonds, stocks, or shares. Foreign securities exchanges are also included in the exchanges that penny stocks can trade on.
A stock exchange will usually provide company listings, facilitate the liquidity of assets, and also provide transparency. This differs from over the counter exchange, where the stock trading happens directly from person to person without the help of an exchange. That is why trading in the over the counter exchange is a little riskier than trading in a stock exchange. Over the counter exchange is where you can mainly trade your penny stocks in.
Now that you know what penny stocks are, you need to know one of the most important things about penny stock trading, which is buying penny stocks. If you really want to get into the penny stock game, buying penny stocks is a very important process that you need to know all about. That is why we are going to tell you all about it.
Where Can I Buy Penny Stocks?
The most important thing you need to know about buying penny stocks is where to actually buy them. Of course, you can find out about how to buy penny stocks from penny stock news today. However, do not hassle yourself with all of that because it is exactly what we are going to talk about in this section.
Penny stocks can be purchased like any other stock. You can easily purchase shares of penny stocks though someone called a stockbroker. A stockbroker is a person whose job is to basically buy or sell stocks. They are the broker when it comes to stocks. Therefore, their job is to execute transactions, whether it is buying or selling stocks.
You can buy penny stocks through a stockbroker even though those stocks are not listed on a big stock exchange. However, you can mostly find penny stocks in an over the counter exchange. Sure, there are cheap stocks available in major stock exchanges. However, those stocks are not necessarily penny stocks.
As we have said before, you can find penny stocks in over the counter exchanges. Listing services such as the OTC Markets Group or the OTC Bulletin Board will provide you with information regarding penny stocks that you can buy or sell. The OTC Markets Group even lists the price and liquidity of over 10,000 over the counter stocks that you might be interested on.
OTC Bulletin Board is what you call a quotation, whereas the OTC Markets Group is more of a quotation publisher. Therefore, the OTC Bulletin Board is just a tad bit legitimate than the OTC Markets Group. Trading your penny stocks in the OTC Markets Group can be riskier because it does not maintain any listing requirement. But you can read all about that in the best penny stock newsletters.
The Potential Benefit of Trading Penny Stocks
Next, let’s talk about the potential benefit that you might get from trading penny stocks. Although penny stocks sound like a low-value asset because of their low price, penny stocks can actually pay off great if you trade them right. And you have one thing to thank for that, which is volatility.
Penny stocks, unlike regular stocks and shares, are extremely volatile. This means that the value of penny stocks can easily fluctuate violently. Although this means that your stock’s value is prone to reduce quickly, it also means that your stock’s value is also very prone to increase significantly in a short amount of time. It is just a matter of luck.
In the world of penny stocks, you need to be able to choose between high risk penny stocks and stocks that have good prospects. That way, with a little bit of luck, you can see the value of your stock jump significantly from $0.05 to $5 in just a course of two weeks. This has actually happened before. Many investors have said that playing with penny stocks has earned them over 1,000% of gains in just a couple of weeks. And it is all thanks to volatility.
Penny stocks can be quite valuable because of its volatility. That is why many people are interested in investing in penny stocks. Ultimately, it is all about finding the right penny stock as a great investment that can turn your life around in a very short time.
The Risks of Trading Penny Stocks
We now know that trading penny stocks has a substantial amount of potential benefits. Unfortunately, trading penny stocks also have several risks that you absolutely need to know about. That way, you can be prepared for anything before you decide to buy penny stocks in the penny stock market.
Penny stocks have their potential benefits because of volatility. However, volatility can also bring disadvantages. For example, you can buy a penny stock for a share of a company at a considerable amount of price. Then, because of volatility, the price of that penny stock of yours can violently go down in just a few weeks. This will definitely be bad for you, especially if the price goes down significantly.
Another risk to penny stock trading is the fact that penny stocks have quite a low liquidity. In finance, liquidity is defined as how easy it is for someone to buy or sell assets without having a drastic change in that asset’s price. Liquidity can be seen as the volume of activity in the market.
Low liquidity in the penny stock market means that even low trade volumes will have quite an effect on the share price of the stock. Because penny stocks are traded infrequently, it is going to be difficult for you to sell your penny stocks once you have owned them.
Other than having low liquidity on its market, it is also going to be hard to find quotations for certain kinds of penny stocks. This will make it impossible for you to accurately price those penny stocks. Because of these risks, it is possible for you to end up with a whole bunch of worthless penny stocks that you just cannot get rid of. That is why you need to have a great strategy if you want to be one of those top penny stock traders.
There is also a concern from penny stock investors regarding the lack of reporting standards for companies that have their stocks on the OTC Bulletin Board or the OTC Markets Group. Because the reporting standards for these companies are very minimum, it gives the opportunity for dishonest people to commit stock fraud.
A stock fraud method that is often used by many individuals is what is often called a pump and dump. Penny stocks that trade for fractions of a cent are usually more prone to be the target of this manipulating method.
The pump and dump scam happens when a manipulator purchases a lot of penny stocks. After that, they inflate the share price artificially by using misleading and false-positive statements. This is the pumping part.
You will then be interested in buying a share in their penny stocks which turn out to be worthless. The manipulator will then sell their penny stocks. This is the dumping part. This type of scam is now even easier to do because of the use of the internet.
This can be quite concerning for those who are interested in penny stock investment. However, the SEC is actively making sure that these frauds do not happen.
In order for your broker to be able to sell you a penny stock, it is now legally required for them to send you a particular document. That particular document should outline all of the risks from owning that penny stock that you are going to buy.
That way, you will be able to know the risks, allowing you to buy penny stocks in a smart way, which is not blindly investing in every penny stock you find in the market. This regulation will also hopefully protect you from penny stock scammers out there.
Is Trading Penny Stocks for You?
Now that you know what penny stocks are, their potential benefits, and the risks of trading them, you need to decide if trading penny stocks is something that you might want to do. And to do that, you need to know your strengths and weakness.
It is true that penny stock trading is not for everyone. You have to know by now that trading penny stocks are full of risks. If you are not playing it smart, you can easily be the target of penny stock fraud. And that is truly something that you do not want.
The Pros and Cons
In order to decide if trading penny stocks might be for you, you need to weigh the pros and cons of trading penny stocks.
The ultimate pro of trading low-priced penny stocks is the fact that it can be a small investment that has the ability to change your life. A small investment in a share of penny stock can very quickly turn into a large amount of money and profit. And by very quickly, we mean just in several weeks of time.
All you need to do is just do your research by taking a look at the current penny stocks list and buy some stocks away. This becomes the main reason why people are highly interested in becoming an investor and playing in the penny stocks game.
The next thing you have to do is to consider the cons of trading penny stocks. Well, the most obvious cons are definitely the risks that trading penny stocks have. Fraud, buying worthless stocks, and so many more things can happen when you are trading penny stocks. You have to be able to weigh between the pros and the cons to be able to decide if penny stock trading is for you.
Despite how scary and risky trading penny stock sounds like, there is actually good news to it. You hear all of these people taking a lot of losses from trading penny stocks. However, there is actually a reason for that. Those people took a lot of losses because of several things.
First of all, they are wasting their money investing in the wrong stocks with the wrong prices and for the wrong reasons. Most people just go into the penny stock game blindly without even doing their research. In reality, you need to consider a lot of things before buying a penny stock. That is called being smart in penny stock trading.
Penny Stock Trading Tips
That being said, the risks of trading penny stocks can easily be avoided. That is exactly what we are going to talk about in this section. Here are some penny stock trading tips that will help you play in the penny stock game right.
The first thing that you need to do before buying a share in penny stock is to see what is up. And by seeing what is up, we mean you have to know which companies are serious in their stock sharing. A lot of people buy penny stocks from black markets and they end up losing all of their investments.
You have to be smart and really know the company that you are buying your penny stock from. This means you have to be able to identify high potential penny stocks and penny stocks that are going nowhere. That way, you will be able to gain the most profit out of your low-priced penny stock.
Penny stocks are low-priced shares that you can trade in the penny stock market. Although there are several risks from trading penny stocks that you need to know, trading penny stocks can potentially be very beneficial to you if you play it right. And that is basically everything you need to know about how to buy penny stocks and more.