Saturday, July 15, 2006

Penny Stocks

penny stocksPenny Stocks are micro-cap stocks that usually trade below $3 and are on the OTC or Pink Sheets market. The fun in playing penny stocks is great returns that are possible. However, with the huge returns come great risks. This is why I love the adrenaline rush of trading penny stocks. Instead of waiting about 1-2 years for a 300% or 1000% gain, with penny stocks this can happen in about a few hours.

With proper research and education, penny stock investing can be a profitable and fun hobby. Small cap investing asks the investor to always be watching their stock portfolio very closely. With large percentage shifts happening in just minutes, one has to learn how and when to buy and sell their penny stocks.

Small cap investing, micro cap investing and for that matter penny stock investing challenges the stock trader with a lot to learn and greatly rewards them with very much to gain. So, head out stock market gurus and scour our penny stock list, play some penny stocks and make yourself some mad money!

More About Penny Stocks

Buying Penny Stocks Share Your Penny Stock Picks And Profit!

Buying penny stocks are not for the faint of heart. Penny stock investing involves buying companies that are in their early stages of building there business. To finance their growth plans, these corporations issue shares from fractions of a penny up to $4.99. The proceeds are used to further develop their products or implement their expansion plans. The rate of failure can be high if a company fails to execute its plans. Huge investment returns can be realized if the company succeeds.

Buying penny stocks means high risk and high return investing. To lower your risk, look for companies with growing sales, a unique competitive advantage and a management intent on being a dominant player in their respective industry. Buying penny stocks is about generating high returns.

Buying penny stocks is to invest in small up and coming companies for potentially huge returns. The investor must keep in mind that with high returns comes high risks for these stocks priced below $5. Many of these companies have been operating for less than 5 years. They are still developing their products and services, establishing their presence on the market and building their operations. Many companies do not make it beyond this stage. Given the failure rate, the risks of buying a penny stock can be considerable.

The upside potential of penny stocks are exponential. The investor who picks the right company can see the returns be many times over their original purchase price. Most of the major corporations had their beginnings as a penny stock. These big money makers tend to have high sales and profit growth, unique products and services and strong management.

How To Buy Penny Stocks
The investor needs to open up a brokerage account before penny stocks can be bought or sold. Given that these stocks trade for modest amounts, transaction costs can easily eat into any profits despite high percentage returns. To be successful as a penny stock investor, an online broker is favored. These stockbrokers offer competitive commission pricing, up to date stock market quotes and a reliable trading system to efficiently execute transaction orders.

Where Do Penny Stocks Trade
Not all penny stocks are created equal. Depending on which venue they trade, the companies are subjected to different filing and listing requirements. The more information the company is required to disclose, the better the chances of the investor properly evaluating their investment potential.

NASDQ Capital Market and American Stock Exchange (AMEX)
For investors looking for emerging companies current on SEC filings, meeting asset and revenue criteria, respecting listing requirements and good trading liquidity, they can be found on these exchanges. The investor can extrapolate a valuation by using the latest audited financial statements to determine whether the stock is worth investing in. The majority of these companies have operations generating sales and earnings. Penny stocks trading on these exchanges range between $1 and $5. Information on these companies is readily available to the investor.

Over The Counter Bulletin Board (OTCBB)
The Over The Counter Bulletin Board is a regulated quotation service that shows real-time quotes, last-sale prices, and volume information in over-the-counter (OTC) securities. OTC stocks do not trade on the NASDQ or any national securities exchange.
For the stock to be eligible for quotation, issuers must be up to date with their filings with the SEC or an applicable regulatory authority. Unlike the NASDQ and AMEX, companies are not subject to listing standards and minimum asset and revenue standards.

Companies that went through financial difficulties and fell below the NASDQ and AMEX asset and revenue criteria end up on the OTCBB. Most stocks in this environment trade under $1. Depending on the liquidity of the stock and who the market maker is, the bid offer spread can vary significantly. The Market Maker is a designated stockbroker who acts as the market for that particular stock. The investor should be as informed as possible about the stock before buying. Selling the stock could take time since there could be very few buyers.

Pink Sheets
This is considered the most exciting of the securities market. There are no applicable rules for companies whose stocks trade in the Pink Sheets. They are not required to file any financials, making it difficult for the investor to put any meaningful valuations on the company. Many companies do not have any real operations to speak of. Stocks are usually priced below $l. The spread between the buying price and selling price is very wide to compensate for the low trading liquidity. Stocks that do not meet OTCBB filing requirements within the 30 days or 60 days grace period are moved here. Once the company starts filing, their shares will be moved back to the OTCBB.

Pink Sheets stocks carry the most risk but also the potential for the highest returns. The challenge is to find a company with real operations, competitive products and assets. At this particular stage, the company does not want to file any financial statements so as not to reveal their intentions to their competitors. For the investor, establishing a relationship with the management of the company is important to getting pertinent information. This includes the financial standing of the business, the number of shares outstanding and business developments.

Picking The Right Penny Stocks
Regardless of where the stock trades, the objective is to find the one that makes you money. There are thousands of companies that the investor can select from. The challenge is to find the diamonds amongst the pile of coal. These gems usually have certain traits attached to them. They include a capable management team, unique products or services, operations already running and healthy finances. By focusing on picking the right companies through diligent research, you have boosted your odds of profitability.


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