Candlestick Trading Blog
March 28, 2008
Buy Penny Stocks
Why Buy Penny Stocks? If you would like to buy penny stocks there are a few things that you should know. First of all, what are penny stocks? Penny stock investing refers to a business’s aggregate value of its outstanding common shares more commonly referred to as market capitalization. To figure out the market capitalization you must multiply the stock price of a company by the amount of shares that are outstanding. Penny stocks are not traded on a stock exchange but instead are traded in the over-the-counter (OTC) market. They are often referred to as “micro-cap stocks” and also “nano stocks” because they are generally lower priced securities that are issued by small companies. When you begin to buy penny stocks you will find that they are priced at less than $5.00 per share and that they are quite complicated. They are often used by struggling companies who are just starting up so it is very important that you consult with an investment broker that you trust. Four important factors to consider when you buy penny stocks include that they lack history, they are no minimum standards, liquidity is low, and there is limited information that is available to the public regarding this type of low priced stock. As mentioned above penny stocks lack history due the fact that many of the companies are struggling and many are too newly formed. As a result they lack either a good track record or a track record at all. It is also important to know that they are not required to fulfill minimum standard requirements in order to remain on the exchange like your large cap stocks. For example, the OTC does not require companies to file documents with the SEC in a timely manner. Liquidity is also low causing the possibility that the stock purchased cannot be sold, and it also allows for some traders to manipulate stock prices. The most common way this is done is when investors buy stock in large amounts in order to hype it up, and then they sell if after other investors find it attractive. These investors then have a hard time selling the stock after the hype has diminished. The last factor to consider is that it is much more difficult to find information on micro-cap stocks. The information that you do find can often be from a source that is not credible and these companies are again not required to file with the SEC. While many investors may scrutinize penny stock investing, it is not to say that you cannot produce a significant amount of income if done carefully. There are many companies on the OTC that are of good quality, and that are trying to make their way to the more reputable stock exchanges such as the NYSE or the Nasdaq. It is risky to buy penny stocks, but with extensive research and the proper trading techniques this is a type of trading that many investors do conduct successfully. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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