ANSWERS: 1
  • Penny stock trading has long been a favorite activity among retail or part-time investors. Along with great opportunity comes great risk. Those investing in penny stocks must understand the risks and evaluate whether penny stock trading is appropriate for their financial goals.

    Definition

    Most investors regard a penny stock as one that is priced below $3. The Securities and Exchange Commission sets the maximum price as $5. Penny stocks normally represent companies that are either new or are having financial difficulties. These stocks are traded the same way as any other stock.

    Markets

    Penny stocks can be found in all of the major stock exchanges. Additionally, Pink sheets and OTC, or Over The Counter Market, are comprised of mostly penny stocks. These are smaller exchanges that trade stocks not able to meet the requirement for listing on the Nasdaq or New Your Stock Exchange. The part-time investor is advised to trade OTC and Pink Sheet stocks with extreme caution due to the volatile nature and limited information available for research. Very few OTC/Pink Sheet stocks mature to the point of being eligible for the larger exchanges.

    Misconceptions

    Penny stocks are popular because they are seen as cheap when, in fact, that isn't necessarily true. When an investor buys a stock, they are purchasing based on the amount of earning power a company has. The reason a penny stock is cheap is because the earnings power of that company is seen as much lower than larger companies. Some penny stocks have zero or negative earnings power.

    Doing it Right

    There are many companies in their infancy that are trading as penny stocks. The investor who does diligent research and finds the next up-and-coming company stands to make a large amount of money. Patience and exhaustive research are the keys to success.

    Alternatives

    For the investor who is looking for safe, low maintenance investments, penny stocks should be avoided in most cases. Larger companies with more stability and a history of dividend payments are a better choice for the investor who doesn't want to spend large amounts of time tending to his portfolio.

    Source:

    LowTrades: Penny Stock Facts

    More Information:

    SEC: Penny Stock Rules

Copyright 2023, Wired Ivy, LLC

Answerbag | Terms of Service | Privacy Policy