Anyone looking to make money by trading may like the idea of penny stocks. They are different from the longer term trading of established companies and can be risky, but also very good investments for intelligent investors. A surprising number of people do not understand the concept of penny stocks though and may have an incorrect opinion based on the name.
Here’s a quick, easy burst of information, to help you start to get to grips with penny stocks. Hopefully this will give you some pointers for further exploration and research, rather than a definitive understanding.
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Defining Penny Stocks
Penny stocks are the well known name, for what is more formally referred to as a micro cap equity. In its simplest terms, it’s a cheap stock, a share which trades at a lower worth than blue chip, high cap items.
Within the United States the SEC define a micro cap equity as a share which trades at a unit worth of lower than $5.00. This is an official definition, however there are different, looser definitions, which are used by traders and penny stock brokers, depending on their place within the penny stock market.
If you’re talking to a broker or investor about penny shares, they may very well be talking about shares where the worth, per unit, is less than a fraction of a cent. You may additionally be looking at shares which can be traded on more obscure markets, with caps of $25-$50 million, or less, depending on the definition applied.
Of course, you don’t have to be within the US, to be speaking about penny shares, as they’ve parallels, all all over the world, where low cost stocks and shares function, in markets that assist their trade. Top penny shares can go on to be massive name, blue chip stocks, as a company grows and the markets they trade on can change, over time.
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Because the definitions used are somewhat flexible, in many cases you’ll often find that there are some contradictions to be discovered, in the way that these shares are defined. For example, you’ll be able to have shares that trade in obscure markets, with high unit costs. Equally it’s possible you’ll find companies with high market caps, buying and selling at costs well under $5.00 per share.
What Markets Trade Penny Stocks?
Penny stocks might be traded on a wide variety of markets. In the United States, this could imply something from the NYSE and NASDAQ to the OTC-BB and Pink Sheets. Penny Stocks usually tend to be discovered on the OTC-BB and Pink Sheets, because the larger exchanges are inclined to give attention to higher market cap companies.
Small cap shares are usually found where the rules and charges for exchange itemizing are lower. The Pink Sheets have fewer restrictions than the OTC-BB, so you’ll discover them in biggest numbers there. You’ll discover that some brokers prefer not to deal with the Pink Sheets, however you’ll find plenty of OTC-BB Brokers, with a comprehensive record of OTC shares available.
Additional reading can be found at risks of penny stocks.
I hope this has helped you to understand penny stocks a little more and whether you should invest in them. They are not for all investors but for a certain type of trader they can be perfect.
