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.

Related posts

• Who to Trust: Where to Invest Your Money Online (0)
• Save Your Money When Investing In Long-Term Growth Stock Picks (0)
• Cheap Stocks – What You Should Look For (0)
• Bond Investing For Dummies (0)
• Bad Investment Advice (0)

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

Freebies For You!
Free Trial To Cramers Action Alert
Free Investing Membership

Related posts

• Beginner Investing: Free Stock Market Tools (2)
• Beginner Investing: Diversify Your Portfolio (1)
• Losing A Little Is Better Than Losing A Lot (0)
• Free Stock Market Site (0)
• Beginner Investing: When Research Pays Off (3)