The term penny stocks generally refers to any stocks that trade outside the major stock exchanges and is taken as ‘deprecatory’. The major stock exchanges would include: NASDAQ, AMEX, or NYSE. The term Penny stock is also often used interchangeably with small caps and nano caps. The title of penny stock however should be determined by the share price rather than the listing service or market capitalization.

Penny stocks often have market caps lower than $500 million. This makes it highly speculative for those who trade low volumes ‘over the counter’. Some believe that penny stocks are difficult to sell once purchased because of the difficulty in locating quotes on particular penny stocks. Investors in these stocks are expected to understand that the loss of their entire investment is a viable risk.

Despite the risks involved, penny stocks are attractive to new investors because of the low initial price and the possibility of quick payouts of up to 100 percent in some circumstances. Just as there is the potential of high profits, that potential comes with the risk of substantial losses. Penny stocks are considered high-risk investments. As a result investors should be aware that these stocks have a limited amount of liquidity and fraud in addition to a lack of financial reporting.

Penny stocks have fewer shareholders. This makes them less liquid than stocks of larger companies. It also means that it will buy and sell less shares. The fact that less shares are traded generally results in unpredictable stock prices. This can either make the prices rise sharply or suddenly decline. The lack of liquidity within this market leaves it wide open to exploitations by market makers, management, and other parties. These stocks can also be difficult to sell quickly as some days there simply are no buyers.

Another reason for this lack of liquidity is the minimal listing requirements for smaller market listings as compared to NASDAQ or NYSE. Companies that have fallen below requirements for the larger exchanges have the opportunity to get listed on the OTCBB or Pink Sheets.

If you are comparing Pink Sheets to the major exchanges you might want to take note of the fact that Pink Sheets have very few regulatory requirements for those being listed. In other words, there is little protection in place for shareholders by way of accounting standards, notifications of ownerships of shares, etc.

These things combined make penny stocks very attractive tools for fraud. This does not at all mean that all stocks listed on the OTCBB are untrustworthy, it simply means that you should keep your eyes open when making deals on this market.



By: Christopher Smith

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Hot Penny Stocks

People usually fear what they do not know. You cannot judge or label something until you get to know it.

First impressions are a perfect example. One person may have preconceived notions about somebody who they don’t know much about. Once they get to know that person, they realize that their first impressions were invariably false.

The same thing applies with penny stocks. Penny stocks get a bad first impression. They are quickly written off. The purpose of this article is to get past that first impression, to really dig deep and see if these bad impressions are warranted or not.

Below are some of the myths that always seem to shadow penny stocks.

Myth #1

“You’ll lose all your money if you trade penny stocks.”

This stems from the belief that trading penny stocks is risky. Actually, any form of investing in stocks will always invariably involve risk. The only way you will lose all your money trading penny stocks is if you don’t bother trying to minimize the risk. The key is to look to MINIMIZE that risk! It’s as simple as that.

For example, starting your own business incurs high risk. Does that stop people from doing it? No. And you know what? The people who succeed in starting their own business are the ones who minimize the risk. They do that by researching on how to successfully start their own business by reading, talking with people and taking action. The same thing applies to penny stocks.

You will not lose all your money by trading penny stocks provided that you minimize your risk by researching, learning, and practicing trading before starting.

Myth #2

“There’s not enough liquidity in penny stocks.”

What do people mean by liquidity? Liquidity simply means having enough volume to easily buy and sell your shares. For example, if a penny stock only has two trades, its liquidity is said to be low. There are not enough traders to buy and sell.

However, if a stock is experiencing huge amounts of trades, thereby indicating the presence of a large number of traders, its liquidity is said to be high because you can easily buy and sell shares.

Looking at an after market report recap of penny stocks will reflect that there is more than enough liquidity in penny stocks.

Myth #3

“It’s easy to make money in penny stocks.”

When it comes to penny stocks, the math looks very appealing. Buy shares at a penny and sell them for two cents. There, you just doubled your money. If it were that easy, people would be millionaires.

The fact of the matter is that trading penny stocks can be very rewarding. However, that reward goes to those who educate themselves and paper trade (practice trading with fake money to gain experience), in other words, goes to those who are willing to pay the price to learn.

That’s precisely the reason why some people are very negative toward penny stocks. They have been attracted to the potential of making money, only to rush in without any sort of training or education and become disillusioned and embittered.

Despite all the stereotypes that seem to follow penny stocks, there’s one aspect that everyone agrees on. Penny stocks involve high risk and high reward. There’s no doubt about that. The key to getting that high reward is to learn how to minimize the high risk. It’s as simple as that. It’s as simple as that.



By: Jason T. Brook

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Hot Penny Stocks

In the world of financial services there are lots of shades of gray, actually green. Some items are clear and have a simple definition, while others defy being pigeon holed. Penny stocks are one of those very concepts. There is no accepted, official designation for the term “penny stocks” and which are and which are not will depend on exactly whom you ask. The SEC calls any stock under $5 a share a penny stock. Each brokerage firm and financial entity will have a different set of criteria for deciding whether or not a stock is “penny stock” or not.

In the easiest of terms, penny stocks are usually determined by three factors. These factors are (1) the price per share, (2) the market that the stock trades upon and (3) the market capitalization of the company from which the stock derives. Of course, there are some variations on each of these factors, and some brokerage firms will treat all stock from companies under a certain market cap as penny stock.

The Securities Exchange Commission will consider all stocks with a price per share of less than five dollars a penny stock; brokerage firms usually are far more lenient. Having one factor to qualify as a penny stock will not necessarily give a stock that determination, most have at least two and many qualify under all three.

Penny stocks are high risk, but can yield high rewards if you carefully research these investments. Make sure that you understand that it is easy to lose all of the money you have invested, but it is equally easy to make fast money with some smart planning and a lot of good fortune. Some brokers will not deal with penny stocks because they can be considered volatile and wildly unpredictable. They are usually unable or unwilling to do the necessary background research for these un-proven, small company-based stocks, and in many cases may consider them beneath them.

A small market cap usually relates to a small business, which unfortunately in this economic crisis period has a higher rate of total business failure. Although probably not a good idea for the beginning trader, or those with already tight budgets, penny stocks can be profitable in the right hands. Because they are usually from smaller and largely unproven companies, they can be purchased at bargain prices. If the company does suddenly have a growth surge, not only have you gotten in under the huge price increase, you have just made a large profit. Finding these profitable companies is the hard part. There are thousands of Penny Stocks to choose from, but how do you know which ones will become profitable. Just recently a company has developed a computer program that uses artificial intelligence to sift through the millions of pieces of data. So far the results have been phenomenal. They call it the Stock Trading Robot and it is the 1st commercially available stock trading robot of its kind. Check it out for yourself at the link below, just be very diligent and do your homework.



By: Dan Callahan

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Penny Stocks

If you are a newbie when it comes to investing in penny stocks, then you came to the right place as we provide you an introduction on how to start with buying and trading penny stocks.

For people who do not have a background in finance and stock trading, entering the stock market will be hard at the beginning. But as you learn to navigate it, you will be better equipped in the long run when it comes to being an active player in the stock market.

First, stock market experts and brokers are actually encouraging investors who are new to stock market trading to invest in penny stocks first. This is based on the reason that penny stocks are relatively cheap and affordable and at the same time easy to have access to. One important thing that sets penny stocks apart from other stocks is that it does not trade on the main stock markets like NASDAQ or the New York Stock Exchange.

But before buying penny stocks, you need to know what this specific kind of stock is. To shed light on this matter, penny stocks are low priced stocks offered by companies which are usually in the startup phase or companies who want quick cash inflows.

Penny stocks have greater risk compared to other kinds of stocks. In fact, penny stocks are perceived to be high risk investments. Chances are, you might lose rather than gain profit from it if you do not have quality information about the certain kind of penny stock that you bought. Remember that research is key. You must be able to know the background of the company that is offering the penny stocks before you actually go out and buy it.

Now that you know the basics when it comes to penny stocks, you will be a better equipped trader of it if you will expand your knowledge about it. Do your research on penny stocks, as well as any other kind of stocks that you want to invest in, before putting it in action. Keep in mind that you are dealing with money also and all decisions when it comes to money should be wise decisions.

Before investing in penny stocks, remember that you can potentially lose money from it. But on the other side of the coin, you can also profit from it. The stock market is very risky and it can go either way.

Also, you can also go online and read the analysis of experts when it comes to penny stocks. These experts will give you tips on what particular penny stock is attractive to buy as of the moment.

When it comes to investing in stocks, timing is also important. You must know the right time to buy and the right time to sell the stocks that you have. But the most important thing that you can do before investing in penny stocks is to be very well-informed. Educate yourself and do your research well. Use the information that you will get through your research to your advantage and purchase penny stocks wisely.



By: Nir Dotan

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Stock Market Trading

New investors are being drawn by the appeal of what is known as penny stocks because of the low price and the potential for quick financial growth which can soar as high as as one hundred percent or more in just a few days. But, on the down side, severe loss can occur just as quickly and many penny stocks can lose all of their value in the long term market. Some people will warn you that penny stocks are too high risk to invest in and that new investors should do their homework to be aware of the risks that are involved in penny stocks. These risks include limited liquidity, little or no financial reports, and, of course, fraud.

But, many new investors have had a great deal of good fortune with penny stocks. Even though a penny stock has fewer shareholders, and it will not trade as many shares per day as a larger company, penny stocks can still afford a newbie in the trading game an excellent opportunity to make a lot of money quickly that maybe invested in other strong companies.

As with any type of stock, a sudden change in the demand of a certain stock can lead to a great deal of volatility in the price of any company stock. This lack of liquidity with penny stocks can send a stock price soaring up very quickly, but it can come crashing down just as quickly. So making sure that you closely watch the penny stock market can help you make some shrewed investments that can have some very high payoffs.

Even with the lack of liquidity and volatility of penny stocks they can still be an ideal investment for many people who have the desire to increase their personal financial holdings and get the feel of trading and investing the stock market. Finding a good and reputable stock firm is the best idea for starting to deal in penny stocks. This helps to minimize financial loss and helps to avoid any fraudulent penny stocks that have become a common area for online scam artists.

So, if you have the desire to jump into the world of the stock market, but don’t want to invest a lot of your hard earned cash try penny stocks. They can be well worth the effort for short term income growth and lead to bigger and better things.

All stock trading activities cost a fee and they have a certain amount high level of monetary risks especially for the unwise and inexperienced stock traders and/or investors seeking for a quick and easy way to make a lot of money in a short period of time. Also, stock traders and investors will have to deal with the costs of commissions, taxes and fees to be paid for the brokerage services. There is a myriad of fiscal obligations that must be observed, as well as the taxes that are charged by a particular state on the transactions.

Many companies offer courses in stock picking, and many have reported a great deal of success through technical and fundamental analysis. Many economists and academics have stated that because of what is known as efficient market theory it is unlikely that no matter the amount of analysis that one can do, it will not help an investor make any gains above the stock market itself.



By: Daniel Millions

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Hot Penny Stocks

Day trading of penny stocks is a high-risk venture with a very high potential for earnings and also a very high potential of loss. This risky activity is not recommended to be done habitually, and it is it not even encouraged.

But what do you do if, at a certain point in your stock market practice, you notice that there are particular penny stocks that seem to be appreciating rapidly? By rapidly, you notice that its price moves up quite quickly over the course of hours or even minutes. You also notice that relative high volumes of the stock are being traded.

You can assess the risk of investing in the penny stocks, carefully considering if the potential gain would outweigh the risk of loss of your investment. Your choice if you want to invest or not, but whatever decision you make, don’t dilly-dally make a decision, then stick to it. Changing your mind about that particular rapidly moving penny stock may make you much more susceptible to investment losses later on.

If you decide to invest in the rapidly moving penny stocks, then you are in a position to do momentum trading.

Momentum trading often gets started when penny stocks are mentioned in newsletters as a hot buy and investors rush in to buy that particular penny stock. The rush to buy the stock makes the price of the stock go up. Market makers raise the price of the stock because of the laws of supply and demand there is often not much of the penny stocks they have to begin with, and they are flooded with the demand of the stock.

Investors such as you, who have noticed that the penny stocks prices have been moving up, will be convinced that the prices will still go higher and put orders for the stocks minutes or even seconds apart from the last order of the stock.

Eventually the stock buying frenzy slows down, and successive selling drives the penny stocks prices down. In momentum trading situations, it is not uncommon to have a 10 cent stock move up to 50 cents in a couple of hours, and then go down to 15 cents after half a day. Sometimes, the price changes can be much higher and much more rapid.

Momentum trading seeks to gain profit from these quick price changes. This type of activity can be very profitable for the early buyers of the stock, if they make the right decisions and keep their greed in check.

To profit from momentum trading, you must place your buy order as soon as you make the decision to invest in the penny stocks that you have noticed. Or if you are the lucky enough to receive such a newsletter or tip recommending a buy of the particular stock, and you trust the newsletter or tipster, place the order as soon as your receive the tip.

Remember to keep your greed in check by placing a limit order when buying the penny stocks the stock prices changes so fast in momentum trading. Place that one order and wait for the price movements. Do not be tempted into chasing the price of the stock as it rises. If you do, and catch the penny stocks at the price decline stage, you would incur losses.

Momentum trading is profitable if you are disciplined and you keep your greed in check. You have identified the rapidly moving stock. You placed that one order. You did place only one order at that particular price and didn’t order more as the penny stock has moved up, haven’t you? Good. Now, you decide at what price you would like to sell your stock, and sell it when the penny stocks price has reached that point.

As soon as you receive the confirmation that you have bought the stock, place your next trade, and that should be a limit sell at the price that you have decided to unload your stock. Keep your greed in check. Many investors hold off selling their stock because they see the price going higher and higher. You need to be disciplined enough to buy a rapidly rising penny stock, and then sell it in as little as ten minutes later with a small but satisfying profit. By being disciplined enough to sticking to this method when momentum trading, these small gains that you make will add up over time.



By: Nir Dotan

About the Author:

Penny Stocks