When the "average Joe" decides that he wants to purchase some stock, it is usually beyond him what stock to purchase. There are so many out there, and they do not look like sound investments because buy one share you have to pay such a ridiculous price. There is a way though. The Securities and Exchange Commission (SEC) offers a whole category of stocks from companies that sell below $5 a share. They are called Penny Stocks.

Penny Stocks trade for such a low price because they are from companies that are new, have small value, or have lost a lot of value. Most of these companies are under the radar and so they have not gotten a lot of buzz from the regular news shows that promote certain stocks. They also do not have the same hype because they have not been around as long as some other companies. However, when deciding to purchase a stock these may be the way to go.

Some features of these stocks may not be as attractive as the more established "blue-chips”. Blue chip stocks come from companies that are well established and have to follow certain guidelines to be a member of one of the more recognized exchanges. This does not mean that the companies that sell their stocks at below $5 per share are trying to pull a fast one; they may be as solid as any of the larger companies. However, they are not as recognized. Small companies have to start somewhere and so they usually peddle their wares on the Over the Counter Bulletin Board (OTCBB) or on Pink Sheets. These two exchanges deal exclusively with Penny Stocks. They do not have some of the oversight that the other exchanges do, but they do offer stock at prices anyone can afford.

Like any other investment, you need to do your research. Yes, there are fraudulent practices perpetrated with these low price stocks, but there are with the big boys too. The companies usually are not involved in any fraud, but the low price of the stocks makes them an attractive target for unscrupulous types. Many of the stocks that sell at these low prices are from sound companies that have a high amount of money invested by the workers. This is important because if they are making the product and investing in the company’s future, since they have the most knowledge of the company, it is easier to trust that company. Outsider who sees a possible patsy in a small company that is trading at a small price and tries different ways to manipulate the price does the fraud. Just do not jump into something without proper research.

Penny Stocks can be a great investment for someone with out a lot of money to spend. In addition, in these times they may actually be a better investment that some of the big companies. Make sure you research the company, follow seasoned advice, and have some fun with it.

 



By: martin lewis

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Stock Market Trading