Penny Stock Basics

Are you planning to invest in penny stocks? Well, this is probably a good route if you want to buy a lot of shares with lower stock prices and expect possible high returns with your investments in the stock market. With as low as minimal investment of $25,000.00, you can buy a load of shares in a single trade. To further give you an overview of penny stock trading, here is some information that you should know as an investor.

Penny stocks are shares owned by public companies that are usually undervalued, with prices as low as $5.00 and below. These stocks are known for being a high risk and high reward stock, meaning that the price levels are known to fluctuate in certain levels giving you a chance to have high profits and a higher chance of losing its value. Most penny stocks are used as financing tool for small companies that need to more capital for their operations and expansion. Some investors in recent years have tried to stay away from penny stocks because of the bad reputation that it receives from boiler room operation. But this is just a result of the lack of research on the investor’s part. If proper analysis is done with a company’s background and a little advice for a credible stockbroker, then there is no reason for investors to stay away. Penny stocks are usually traded in different markets. The quality of the markets and the trading practices in it will most likely tell the quality of penny stocks being traded. If you plan to purchase a penny stock that is owned by a company in a regulated market, then it follows all the financial requirements needed by that market. The safest places to find penny stocks are NASDQ Small Market and The American Exchange.

The NASDQ Small Market Cap is the safest place to invest. The companies that are listed in this exchange follow different compliance and financial report procedures. Information regarding the companies financial background can be found on their website, and some companies provide a summary of the previous year’s performance to assure investors of their progress. The liquidity in this market is very good and most of your trades will be matched easily. The average price of penny stock s listed on this exchange is $1.00 and above.

The AMEX or American Stock Exchange is the best place to look for undervalued stocks. Similar to the NASDQ, the companies listed here also have to meet certain financial requirement to trades. The market liquidity is not as efficient as the NASDQ, but it is still better compared with other exchanges.

Another place that you should into to is the OTC-BB or Over The Counter Bulletin Board. The OTC-BB is a quotation service that follows specific regulations in order to function. This provides real time trading activity of stocks. Just take note that the OTC-BB is not OTC, as their names may get confusing sometimes. The OTC or Over the Counter is market that does not require much regulation. There almost no market liquidity, so shares bought here will be hard to sell.

There are information services that provide tips, advices on hot penny stocks and free newsletters on these kinds of stocks. It is also best to seek professional help in stock trading. But it all depends on your budget and what you need.