Penny stocks are basically cheap stocks that are traded under $5 per share. Also called micro-cap stocks or nano-cap stocks, they are also common shares of small public companies. This is precisely they are not available at New York Stock Exchange (NYSE) or the NASDAQ but are traded over the counter (OTC). Penny stocks were originally defined by the Securities and Exchange Commission as a stock that traded for less than a dollar. Today however, that was changed to a stock traded for less than $5, which show how penny stocks have kept abreast with inflation and provided evidence of its revenue potential.
High risk and high yield
As its very nature implies, the biggest advantage of buying penny stocks is its very cheap price. This is because penny stocks represent ownership of companies that are small, in the brink of insolvency or are overleveraged, which makes it risky. This makes them available in pink sheets, which is an exclusive trading platform for penny stocks. In spite of this risk, penny stocks can however give you a high potential earning. In fact, the most popular companies offering penny stocks are can be reputed to be of a less risky investment.
Managing risk in Penny stocks
The appeal of penny stocks that they don’t cost much but can promise high earning potential. With a small investment, it can earn you a great return if the trade works out right. However, it can also make you waste or lose money. hence, it is important to manage your risk when investing in penny stocks. First off, you should invest only a small portion of investment money to penny stocks. Do not get blinded by the high potential of earning. Instead be wary of its high risk. Secondly, you should learn how the market for penny stock operates so that you can strategize and create a plan. Third, you should intensely monitor market changes because volatility of penny stocks is very fickle. And finally, you learn how to determine pattern changes so that you can at least conduct a prediction.
Penny stock trading strategies and tips
Don’t get carried away with rags to riches story.Focus on understanding market forces in doing and deciding what and where to trade. Success stories that compares penny stock trading success to winning the lottery hardly occurs.
Tips and disclaimers.Learn the trading game instead of relying on tips and advises from experts, who are often writers who are paid to pitch a stock to lure investors to buy penny stocks of companies that promise high yields. Notice that most of them have disclaimers to free them from blame in case of botched or flopped advise.
Don’t trust company management.Don’t rely on information from the company management because they will always tell you promising information. This is especially true for failing companies who are in a desperate attempt to raise money and save their business.
Concentrate on penny stocks that trade in high volume.The penny stock that is trading well is one measure that you can buy and sell your shares without fear of holding a losing share.