Penny Stock Basics
A penny stock is a common stock valued at less than one dollar. They are usually traded for less than one dollar per share, however The Security and Exchange Commission has modified the definition to include all shares trading below five dollars. They are often traded over-the-counter through the OTC Bulletin Board and pink sheets.
Why choose a penny stock? Penny stocks are often thought of as “high risk” stocks but also a higher yield if the underlying individual or business succeeds. Sometimes referred to as “the slot machines of the stock market,” you may to choose to supplement your investment with purchases of penny stocks. It is not uncommon to see gains of 20% or 30% in just a few days.
It’s always good to do some research before making investments. There are some tips for choosing which penny stocks to buy. You should definitely check out the strength of the company’s fundamentals. Find out if the company is profitable. Also, look at other companies in the same sector. Can the company stand up competitors? Always focus on stocks with high buying volume. Choose a stock that has recently spiked (a large upward or downward movement of price)?
After doing your research, choose the best of the bunch according to your trading strategy. Most penny stock traders trade without physical brokers, online sites are most common. Select a price range of your buy price. A specific target amount isn’t important. Investing in penny stocks is typically considered part of a short-term strategy. Protect penny stock gains and cut penny stock losses if necessary. These topics are all related to the risks that are involved with penny stock trading. Don’t get too comfortable, and never fall in love with a stock; the name of the game is to make money.