All About Penny Stocks
When discussing penny stocks, many investors are referring to highly volatile, lower priced stocks. These stocks are exchanged over the counter (OTC) and sell for less than $5.00 a share. They are also referred to as micro-cap stocks. Companies offering penny stock may be new (the penny stock may be part of an IPO), or they may have some challenges in the areas of debts to asset ratios, liquidity, or small capitalization. Since these stocks are subjected to less rigorous filing and regulatory standards and limited listing requirements, investors should research each company thoroughly before purchasing.
Most investors opt to forgo the pricey brokerage firms and buy and sell discounted penny stocks on their own. There are a number of online trading platforms which make trading discounted penny stocks user friendly. When researching trading sites and platforms, you should look for the following features:
• It should be easy to sign up. Most firms will allow you to sign up online and immediately transfer your opening balance from your bank. Your identity and fund availability can be verified almost immediately, so there is no need for you to fax or mail any forms.
• The sites should be user friendly. The site should be easy to understand and navigate. Most sites have a number of different research tools and planning guides for you to utilize. This one stop shopping approach allows you to research your stock and company and then make the purchase. Some sites allow you to create charts
and graphs to help you literally map out your strategy.
• There are a number of different fees associated with online trading. Some sites charge a fee per trade, others charge a fee when your balance dips below a certain amount. Some charge a quarterly or annual fee as well. Take some time to compare fees and services to find the site that best fits your needs and your budget.
When choosing to invest with these discounted stocks, it is important that you do some independent research to identify the economic viability of the company. If the company is new, finding comprehensive and unbiased information can be a challenge. These companies are not required to file with the SEC, so they are not subject to the same regulations and scrutiny as bigger, more traditional stocks. Sites like Google Finance and Yahoo Finance can offer some independent advice. Additionally, discounted penny stocks traded over the counter on the “pink sheets” are not required to file minimum standards. Minimum standards can act as a safety net for investors and a gauge of the company’s overall health.
Discounted penny stocks require continual and constant moderation. The value of these discounted stocks can change rapidly and it won’t take long for your losses to add up. For investors looking for high risk/high reward stock options, discount penny stocks offer the best opportunity for a big return. While not for everyone, discounted penny stocks can offer an exciting and lucrative opportunity for well informed and diligent investors.