Penny Stock Trading
Penny stock trading is any type of trading outside one of the major exchanges like NASDAQ, AMEX OR NYSE. Penny stocks are usually very low in price, most times under five dollars, from securities of very small companies.They also include the securities of certain private companies with no active trading market. Penny stocks are traded over the counter and can also trade on security exchanges and foreign securities exchanges. Other names for penny stocks are microcap stock, small caps and nano caps.
If you’re new to stock market trading, you may be intrigued by penny stocks because they are low in price and do have the potential to grow fast. Sometimes they grow as much as 100% in just a few days but, and there’s always a “but” in trading stocks, you also stand to lose quite a bit of money, especially if you keep them for long periods of time. Penny stocks tend to lose all of their value in the long term. Many brokers will tell you that penny stocks are a very high risk and what makes them this way is limited liquidity, lack of financial reporting and fraud. Hence many brokers will tell you to stay away from penny stocks completely, since they seem to be more trouble than their worth. Because penny stocks have fewer shareholders, there will not be as many trades for shares within the day like larger stocks and this is what makes them “less liquid.” A change of any kind in the demand or supply of penny stocks can lead to a very volatile stock price. The lack of liquidity can send the price up fast and it can send it crashing down even faster. Usually lack of liquidity and volatility tend to not mix well and leaves penny stocks very vulnerable to manipulation by a company’s management, market makers or third parties. These stocks can also be very hard to sell when things start going wrong.
There are many things that can go wrong with penny stock trading. Listing requirements are minimal and often fail to meet the minimum standards. More often than not they get de-listed only to be re-listed on the OTCBB or Pink Sheets. Once on the Pink Sheets there is little or no regulatory, or listing requirements at all. This makes it very easy for those with less than good intentions to find someone new to the game and taking their money to the cleaners. Unless you have money to lose, or you like living dangerously, then penny stock trading is really not recommended here. You are much better off putting your money where you know you will earn an investment. Not everything that sounds good is and even though the word “penny” may sound like you can buy a bunch of shares for little money, don’t be fooled by how much you stand to lose. So keep your money in your pocket when it comes to penny stock trading and save it to invest in something you know will put more money back in your pocket where it belongs.