Did you ever wonder what exactly penny stocks are? Penny stocks are a low-priced, high risk common stock that is highly speculative, but holds the potential for above average returns.
Penny stocks will trade between fractions of a penny to $5.00. It has been known for some penny stocks to skyrocket from $0.25 to $20.00, while others can just become worthless.
Penny stocks usually represent small companies just waiting to be discovered or have yet to grow.
What’s great about buying penny stocks is that it doesn’t take a lot of cash to own a piece of a great company and have the potential to turn a small investment into a huge gain.
Do you know the difference between penny stocks and micro cap stocks? The difference between penny stocks and micro cap stocks is that penny stocks trade for less than $5 a share with a market capitalization of less $10 million. Micro cap stocks trade between $5 and $20 a share and has a market capitalization of $10 to $300 million. Penny stocks are traded over the counter through quotations services such as the OTC Bulletin Board or the Pink Sheets. Most micro cap stocks are also traded on over the counter exchanges but the larger, more established micro caps are often listed on the NASDAQ Small Cap or the American Stock Exchange.
Do you know what an Over-the-Counter (OTC) market is? An OTC refers to a decentralized market of securities. Unlike other organized exchanges such as NYSE, AMEX, Nasdaq, ECNs, etc, OTC markets usually list small companies. Trading occurs through dealers via telephone, facsimile or electronic network instead of a physical location. Dealers carry inventories of securities to facilitate the buy and sell orders of investors.
There are two OTC markets. One is the Over-the-Counter Bulletin Board (OTCBB), which is an electronic trading service offered by the NASD. On the OTCBB, there are no minimum annual sales or assets required to list. It is considered very high risk. The second is Pink Sheets which is a daily publication compiled by the National Quotation Bureau containing price quotations for over-the-counter stocks. Companies that list on the Pink Sheets are not required to meet minimum requirements or file with the SEC.
When looking for great penny stocks, make sure it has an experienced management team, strong financial numbers, and a great product or service. Great penny stocks should look just like any other great company, but smaller. It would be ideal for the penny stocks to have good trading volume and an increasing trend in market share and earnings.
Try to avoid the penny stocks that are traded on the Pink Sheet markets, trade for fractions of a penny, have five letter ticker symbols, if they are shares in a bankrupt company that still trade or have a poor reporting history.
You can benefit from finding penny stocks early. We seek them out, find them, buy them and sell them to collect the profits before Wall Street discovers their potential.
