Wednesday, September 14, 2011

Penny Stock Tips:

Penny Stocks For Dummies


Though there does not exist a penny stocks for dummies book, it certainly should be written soon.  The confusion surrounding penny stocks is really overwhelming for most investors. In fact there is a large community of investors out there, who dare not buy any penny stocks because they are completely clueless about these little treasures and too embarrassed to ask their more experienced friends.
So for all those who are not sure what a penny stock is, where it trades and what you need to do with it, here goes:

A penny stock lacks a formal definition but is usually understood  to be a small cap stock which trades under 5 USD.  Penny Stocks can also be defined as companies that have a market capitalization of under 200 million dollars.

Penny Stocks do not trade on regular stock exchanges, instead being listed on so called Pink Sheet. Pink sheets, another name for OTC boards, refers to the pink colored papers on which penny stocks lists are delivered to the broker, and through the broker to the investor.

This gets us to the next point. Penny Stocks can be very very tricky. Having to go through a broker and paying brokerage fee can be worth it but one has to be very aware of all the crooked and cheap brokers out there. That being said, penny stocks brokers should never be expensive and going the discount broker rout is the very best decision when making a penny stock brokerage account.


Another thing to be conscious of  when investing in penny stocks is fraud. Pump and dump schemes and  different price manipulations can be very serious and very common. However, luckily for penny stocks investors, the SEC has started cracking down on fraud in recent months. read more about penny stock fraud in this New York Times article.

No comments:

Post a Comment