What Are Penny Stocks
What Are Penny Stocks
So what are penny stocks? In the USA, a penny stock is a common stock that trades for less than $5 a share and is traded over the counter through quotation services such as the Over The Counter Bulletin Board (OTCBB) or the “Pink Sheets,” as these stocks are generally traded outside the major exchanges (NYSE, NASDAQ). You will have to hire a broker to perform your transactions, both buying and selling shares, but that’s no big deal, and I’ll tell you how.
When you consider the numbers, you can see why savvy investors prefer buying penny stocks. Excluding commissions, you can take $2,000 and buy 2,000 shares of a $1 stock, or 40 shares of a $50 stock. To double your money, the $1 stock would have to rise to $2. To do the same, the $50 stock would have to rise to $100. Now ask yourself, which is more likely to happen in the shortest period of time?
Microsoft, Walmart, and many other companies started off as small cap stocks. Profitable penny stock companies can be winners. Even Ford Motor Company started as a penny stock and was in this category yet again as recent as the first quarter 2009. Had you purchased Ford at the beginning of 2009, you would have made over 500% returns in one year. While most large cap stocks sluggishly provide single digit returns, microcap penny stocks offer the opportunity for amazing gains.
Cray Research also started as a small Over-The-Counter (OTC) stock, later moving to the New Your Stock Exchange as it grew. Several stock splits later, the early investors became millionaires.
In the past, penny stocks had a bad name because of risk and lack of information about the companies. Nowadays, investors have much more information available to them and the SEC has added more reporting and regulation. People are quickly learning that penny stocks represent small companies across America and Canada that are great and have yet to grow or be discovered.
Penny stocks are not listed or bought on organized stock exchanges such as the New York Stock Exchange. They are considered Over-the-Counter (OTC). However, most people don’t realize that many penny stocks can be found on the NASDAQ, but most people don’t list NASDAQ traded stocks in the definition of “Penny Stocks.”
As a tip, when seeking the most financially solid low-priced penny stock, don’t overlook the NASDAQ or be surprised to find good penny stocks listed there.
So although the official definition of penny stocks does not include stocks listed on the NASDAQ, I recommend you broaden your definition.
The upside of penny stocks is the ability to turn a small investment into a fortune. The downside is the volatility of the shares depending on share float or other factors, and occasional the lack of corporate transparency. But overall, buying penny stocks represents one of the best opportunities to make great gains.
As a penny stock investor you are out to discover small companies before the larger investment community discovers them. Without stability and dependability there is risk, and you learn to analyze and avoid these stocks. When you do, you can turn a few hundred dollars into thousands, by selecting the right stock at the right time.
With penny stocks you don’t have to risk a lot of money and can make large gains and many penny stocks pass the test and are in a position to provide great rewards.
Remember, many big stocks today started out as penny stocks.
You only need a few good stocks to make a significant amount of money. Doing the work or having access to the right information and analysis can pay-off.
Buying Penny Stocks
