Anyone looking to make money trading may like the idea of penny stocks. They are different from the long-term operations of established companies and can be risky, but they are also very good investments for savvy investors. However, a surprising number of people do not understand the concept of penny stocks and may have an incorrect opinion based on the name.
Rather than investing your money in penny stocks without fully understanding what you are doing, it is important to understand what they are. In this article we will go over the basics so you can decide if it is worth spending your time researching this unique type of negotiation.
Definition of Penny Shares
Penny shares are the well-known title, by what is more officially known as micro-capitalization capital. In its simplest terms, it is an economic stock, a stock that trades at a lower value than high-end, large-cap items.
In the United States, the SEC describes a microcap as a stock that is trading at one unit worth less than $ 5.00. This is an official definition, but there are other more flexible definitions, which are used by penny traders and brokers, depending on your place in the penny stock market.
If you are talking to a broker or investor about penny stocks, they may be talking about stocks where the value, per unit, is less than a fraction of a penny. You may also be looking at stocks that are trading in darker markets, with limits of $ 25 to $ 50 million, or less depending on the applied definition.
In fact, you don’t have to be in the US to talk about penny stocks, as they have parallels all over the world, where stocks and low-cost stocks work, in the markets that help your trade. First cent stocks can become highly regarded, top-of-the-line stocks, as an organization grows and the markets in which they operate may change over time.
As the definitions used are relatively flexible, in many circumstances you will often find that there are some contradictions to discover, in the way these actions are defined. For example, you may have stocks that are listed in dark markets, with high unit costs. In the same way, you may discover corporations with high market limits, trading at costs well below $ 5.00 per share.
What markets trade in Penny stocks?
Penny shares can be traded on a wide variety of markets. Within the United States, this could involve anything from the NYSE and NASDAQ to OTC-BB and Pink Sheets. Penny stocks generally tend to be discovered on OTC-BB and Pink Sheets, because the larger exchanges tend to pay attention to the larger market capitalization companies.
Small-cap stocks are typically found where the laws and listing fees are lowest. Pink Sheets have fewer restrictions than OTC-BB, so you will find them in greater numbers there. You will find that some brokers prefer not to deal with Pink Sheets, however you will find many OTC-BB brokers, with a full list of OTC stocks available.
This should be enough to get you started, but keep in mind that trading these actions will require more reading and implementation if you intend to become an active trader. Of course, there can be a lot of risks involved and you need to follow a proven system if you expect it to work.