Beginner Investing » penny stocks

Introduction to Penny Stocks

Thu, 23 Sep 2010 20:35:52 +0000

Penny stocks, also known as micro-cap equities, refer to a share in a company that usually trades for less than $5.00. However there are other criteria that come into play with penny stocks that include: a price per share of less than $1.00, or even a fraction of a cent, as well as obscure markets, and a market cap of less than $50 million. It’s obvious to see that penny stock covers a wide variety in terms of definitions. So basically it is a stock that’s traded outside, or lower than, the market price of most stocks.

What Type of Traders are Attracted to Penny Stocks?

Usually seasoned investors are attracted to micro cap equities due to their volatility. This makes for a larger price move in shorter time frames with a greater upside potential on a percentage basis. Another type of investor, that may ignore the volatility, is an investor wanting to start with a small monetary investment. This is where the term “buyer beware” may come into play.

What are the Risks of Penny Stock Investments?

The obvious risk for penny stocks is volatility for first time investors trying to get their feet wet in the market. Companies in the micro cap category are often less secure, and do not pay dividends. Penny stocks aren’t subject to the same type of requirements as Blue Chip equities, so there is more room for price manipulation. Seasoned investors or organizations can buy up large amounts of these stocks and drive up the market price for their own purposes. Therefore, even though they are called penny stocks, you may have a higher risk. However, this can be offset by the possibility of a much higher return on your investment.

What Should I Do to Get Started in Penny Stocks?

The very first thing is research the market; know what you are getting into. There are opportunities for good investments to take you out of the speculator realm, but that will come with time if you are a novice. Visit forums where you can learn penny stocks, so that you can now what signals to look for when buying and selling, and when to take advantage of these signs. Use your brain and not your heart, due to the volatility of quick decisions.

The term “penny stock” is used on the market for several reasons. It can be a reasonable investment when you are aware of the pitfalls, but it can also be very detrimental due to the loosely based criteria for fraud protection. Know your market.

Penny Stock Guide to Investing

Sat, 10 Apr 2010 05:21:03 +0000

Investing in penny stocks is potentially a very profitable venture. As with all very profitable ventures, there is also a great amount of risk involved. Because of this, make sure you do your research and consult a penny stock guide before investing.

What is a Penny Stock?
A Penny Stock is a stock whose shares trade for less than $5. These stocks are a bit risky to invest in, but also have the potential to generate huge gains.

What are some of the Dangers?
One of the greatest dangers of penny stocks is their lack of visibility. Because most of these companies are newly established or small, there is less information about them. This fact requires you to make decisions based on limited information compared to what is available for larger, more established companies in major stock markets. Another great risk is that these stocks can sometimes trade slowly from low liquidity, making it difficult to cash out on your investment.

What are the positives?
By its nature, a penny stock has a lot of potential. That is to say, it has a lot of potential to move either up, down or disappear completely. That being said, there is much more potential for growth than there is for loss. As a result, a good penny stock pick can reap huge returns and give a nice boost to your investment portfolio.

What else should I keep in mind?
Even some of the top penny stocks to buy are not quick, easy money. Despite what anybody tells you, these stocks require great care and educated investment. You should take into account that these shares trade slower than larger shares. Many of the companies selling these penny stocks have high debt loads and are selling stocks to reinvest into the growth of their companies.

Some of this may sound scary. However, with the correct knowledge and prudence, penny stocks can not only be profitable but enjoyable to trade. There is a certain rush that you get from trading in a volatile environment. You also have the opportunity to be part of a someday great company. Many of our largest technology firms were funded in this way. With the correct penny stock guide, you could be well on your way to taking part in the next big venture.

Beginner Investing: Researching Stocks

joanne — Sun, 30 Nov 2008 20:38:23 +0000

When I first started as a beginner investing in the stock market, I was looking to hit it big and make a big score. Everything that I read pointed me toward trading penny stocks and how they can go up in value by 25%-50% in just one day.

I worked with someone that had the trade of a lifetime. He was telling me that there was this company that was in the commodity sector (which in regards to penny stocks, means nothing) and that they were about to hit pay-dirt with a new ore vein discovery. I really wasn’t too sure about commodities and knew even less about how the engineers calculated the potential find of an area.

He talked to another co-worker and myself about getting in on the deal. I was hesitant but this co- worker said that he would research it and get back to us with his findings. I had known this person for about four years and knew that he’d made some decent money in the stock market. About a week later he came back and said that he couldn’t believe what he was finding out. The company was actually going well and was on the verge of the “mother load” of discoveries.

I went ahead and took a chance with the only money that I was able to put together in a short period of time. I invested $200 into the company, but the other co-worker decided to liquidate some of his holdings to get in on the deal in a big way. He invested $50,000 in to this company.

I’m sure by now you know where I’m going with this story. Yes, the company was a scam. They were based in Africa and weren’t subject to the same laws as others that traded on the big boards.

What I mean by the big boards is NYSE (New York Stock Exchange), NASDAQ, CME (Chicago Mercantile Exchange) and the NYMEX (New York Mercantile Exchange). This stock was trading on what is referred to as the OTC pink sheets, which means it’s an over the counter type stock.

I share this story not because I enjoy talking about my failures, but I will discuss the mistakes I’ve made here for two reasons.

1. You can learn from my mistakes.
2. I learned from my mistakes.

My point of this story is that when you trade stocks, you need to do your research and due diligence in finding out everything about a company that trades on these smaller boards. If they trade in a different country they may not be held to the same standards as the ones traded in the United States.

Penny stocks can make you a lot of money, but you can also lose it just as quickly. Be careful in how much you invest in what is referred to as penny stocks.

A penny stock is a stock that has a share value of less then $5. That doesn’t mean that some of the financial stocks that have been beaten up lately are considered a penny stock. I refer to stock of companies that are relatively new and are trying to raise capital to increase their company. Many of them are legit and will become a major player in years to come, but you need to do your homework to help steer clear of the ones that won’t make it out of the gate.

This post is part of the Carnival Of Money Stories

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Beginner Investing » penny stocks

Introduction to Penny Stocks

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