What are Penny Stocks And How Can I Get Some?


Defined Tag: What Are Penny Stocks.

What are penny stocks? In simple terms, penny stocks are stocks that trade for under five dollars per share, according to the Securities and Exchange Commission. Some consider stocks under $3 per share as a penny stock, while others say the cap is one dollar per share. Regardless, they are riskier investments than ordinary stocks.

What are penny stocks’ risks? When you look to trade in penny stocks, you might encounter four issues:

1. Lack of information. Investing money is always a risky proposition, whether it’s in stocks, bonds, real estate, gold, or baseball cards. Therefore, you want as much information as you can possibly get so that you can make a wise investment decision. Information on what are penny stocks’ performance, corporate backing, etc. are hard to locate. Companies who issue penny stocks are not required to file with the SEC. Information available for stocks traded on the New York Stock Exchange or the NASDAQ are much more reliable and available. Information for penny stocks is questionable at best.
2. Minimum Standard Requirements Non-existent. In order to be traded, penny stocks need not fulfill any of the minimum standards that apply to stocks that are traded on the major stock exchanges. What are penny stocks’ equivalent of the New York Stock Exchange? They are traded on the Over the Counter Bulletin Board (OTCBB) or the Pink Sheets. The Pink Sheets don’t need any minimum requirements in order to be listed. When a company that is being traded on a major stock exchange no longer meets the minimum requirements, its stock usually migrates to the lesser exchanges.
3. No History. What are penny stocks companies’ histories? They are usually companies who have just come onto the scene or are close to going out of business. In other words, companies who issue penny stock have a questionable track record or no track record to speak of.
4. Liquidity. What are penny stocks’ liquidity prospects? Hardly any. It’s always possible that the stock won’t sell because no one will buy it. Further, low liquidity lends itself to the practice of “pump and dump.” One way people carry this out is to purchase a large quantity of stock, hype it to make it attractive to other investors, and then sell it.

It seems that penny stocks are fraught with risks. What are penny stocks’ upside? The internet and email spam are full of supposed success stories when it comes to penny stocks. More specifically, some spam claims that WalMart and Microsoft began as penny stocks. Unfortunately, this isn’t a factual statement, but people can be blinded by the prospect of investing into the next Microsoft for pocket change. Penny stocks aren’t always money pits. They can be a good investment if you do some research and find credible information. However, you should temper your expectations and don’t expect overnight riches.