Wondering What Penny Stocks Are?
For anyone getting involved in the stock market, one of your first questions will probably be exactly what are penny stocks? There is a lot of hype, good, and bad press surrounding involvement with penny stocks.
Here we will briefly go over some of this information to help you decide if trading penny stocks is for you.
Penny stocks, by the US definition from the SEC, are defined as stocks that are less than $5 in cost per share (most are less than $1), which are traded over the counter, through quote services.
They are said to be "thinly traded," but hundreds of millions of dollars are traded every day.
Penny stock trading is a speculative market, and are not traded on the NYSE, NASDAQ, or AMEX.
They often have such low prices because they are very small, inexperienced companies, although often, the companies were previously traded on the NYSE and other markets, but because they were not compliant with their standards, they were kicked out and are now penny stocks.
They can often entice new investors because of their extremely low price and the appeal of large growth quite quickly.
Although this gambling mentality sometimes pays off, often these companies go out of business or lose their value all together.
Trading penny stocks is extremely risky, for many reasons.
There is limited liquidity because there may not always be a buyer ready to purchase the shares you are trying to sell.
It is often difficult to decide what to buy because there are not required standards of financial reporting, so researching a company before buying the stock is virtually impossible.
There is also a large amount of fraud in the penny stock game, because of the low standards and lack of information available.
For some though, penny stock trading is a fun and lucrative strategy for investing.
Obviously, if you get the right stock at the right time, you have a huge opportunity to make a ton of money.
Every hugely successful company had to start small, and this mentality keeps millions of people interested in this market.
If you are interested in trading penny stocks, it is important to do your research up front or to deal with a trusted advisor who can help you weed through all of the information out there.
Here we will briefly go over some of this information to help you decide if trading penny stocks is for you.
Penny stocks, by the US definition from the SEC, are defined as stocks that are less than $5 in cost per share (most are less than $1), which are traded over the counter, through quote services.
They are said to be "thinly traded," but hundreds of millions of dollars are traded every day.
Penny stock trading is a speculative market, and are not traded on the NYSE, NASDAQ, or AMEX.
They often have such low prices because they are very small, inexperienced companies, although often, the companies were previously traded on the NYSE and other markets, but because they were not compliant with their standards, they were kicked out and are now penny stocks.
They can often entice new investors because of their extremely low price and the appeal of large growth quite quickly.
Although this gambling mentality sometimes pays off, often these companies go out of business or lose their value all together.
Trading penny stocks is extremely risky, for many reasons.
There is limited liquidity because there may not always be a buyer ready to purchase the shares you are trying to sell.
It is often difficult to decide what to buy because there are not required standards of financial reporting, so researching a company before buying the stock is virtually impossible.
There is also a large amount of fraud in the penny stock game, because of the low standards and lack of information available.
For some though, penny stock trading is a fun and lucrative strategy for investing.
Obviously, if you get the right stock at the right time, you have a huge opportunity to make a ton of money.
Every hugely successful company had to start small, and this mentality keeps millions of people interested in this market.
If you are interested in trading penny stocks, it is important to do your research up front or to deal with a trusted advisor who can help you weed through all of the information out there.