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A Guide To Penny Stocks
You will never usually find penny stocks listed at major stock exchanges like NADAQ or the New York Stock Exchange because penny stocks don't meet the listing requirements. Stocks become listed by meeting the listing requirements such as filing financial reports regularly, having a minimum number of shareholders and a minimum amount of assets. Listed stocks are also supervised by the Securities and Exchange Commission, the SEC.
The penny stocks are normally found on the pink sheets or the OTCBB. If you want to buy over-the-counter securities like penny stocks you need to go to the OTCBB which is an electronic quotation system that is designed just for that purpose. These companies must file finical reports to the SEC if they wish to remain listed here. If this requirement is not met then the company can only be quoted via the Pink Sheets. The Pink Sheets activities are not monitored or regulated by the SEC.
No filings need to be done for a company whose total assets are less than $10 million or if they have less than 500 shareholders.
Penny stocks can be vulnerable to manipulation and scams. Normally the stock price is lower than $5 and as the companies are very small the capitalization is very small as well. Because penny stocks are not heavily reported on this can make it hard for investors to find out information about the company, its situation and its outlook.
Many scammers can use this to their advantage by publishing misleading information to increase the price of their stocks. Because of the lack of interest shown by the public, and the low number of shareholders there is generally not much trading going on. This can mean that with a few buy or sell orders the price of the stock can change dramatically.
The low liquidity of penny or micro-cap stocks are their biggest advantage. Whilst a listed stock can never move in great leaps and bounds penny stocks go that often. The low share price allows you to buy multiple shares in the company with very little money. So it is easy to see that a little change in price either up or down will have a big impact on the performance of your shares.
Whilst the low share prices and the chance at making big money are a lure for young novice investors the penny stock market is definitely a place of experienced traders to play. There is always some amount of risk involved when investing in penny stocks. Some of these companies will not be able to make a turnaround and will end up going bust. This will make your shares worthless.
This could take a while because many penny stock companies have little or no working capital, assets or they are still in the development stages. It is important that you remember that you might not be able to sell your shares for days or even weeks without a big discount because of the low liquidity.
The penny stocks are normally found on the pink sheets or the OTCBB. If you want to buy over-the-counter securities like penny stocks you need to go to the OTCBB which is an electronic quotation system that is designed just for that purpose. These companies must file finical reports to the SEC if they wish to remain listed here. If this requirement is not met then the company can only be quoted via the Pink Sheets. The Pink Sheets activities are not monitored or regulated by the SEC.
No filings need to be done for a company whose total assets are less than $10 million or if they have less than 500 shareholders.
Penny stocks can be vulnerable to manipulation and scams. Normally the stock price is lower than $5 and as the companies are very small the capitalization is very small as well. Because penny stocks are not heavily reported on this can make it hard for investors to find out information about the company, its situation and its outlook.
Many scammers can use this to their advantage by publishing misleading information to increase the price of their stocks. Because of the lack of interest shown by the public, and the low number of shareholders there is generally not much trading going on. This can mean that with a few buy or sell orders the price of the stock can change dramatically.
The low liquidity of penny or micro-cap stocks are their biggest advantage. Whilst a listed stock can never move in great leaps and bounds penny stocks go that often. The low share price allows you to buy multiple shares in the company with very little money. So it is easy to see that a little change in price either up or down will have a big impact on the performance of your shares.
Whilst the low share prices and the chance at making big money are a lure for young novice investors the penny stock market is definitely a place of experienced traders to play. There is always some amount of risk involved when investing in penny stocks. Some of these companies will not be able to make a turnaround and will end up going bust. This will make your shares worthless.
This could take a while because many penny stock companies have little or no working capital, assets or they are still in the development stages. It is important that you remember that you might not be able to sell your shares for days or even weeks without a big discount because of the low liquidity.
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