Before you can begin day trading penny stocks, you need to understand what exactly is a penny stock. Query a collection of investors about the label of a stock trading under five dollars and they’ll provide several answers, including the labels penny stock, micro cap stock, or nano stock. For the most part, these three terms can be interchangeable.
For this page I’ll utilize both penny stocks and micro cap stocks, but while they can be used interchangeably, they do have slightly different meanings. Micro cap stocks are defined as such based on their market capitalization while penny stocks are defined by their specific price.
Either way, you need to understand that to buy penny stocks or micro cap stocks includes both potential reward… and great risk.
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Penny stock fortunes are available to anyone with the patience to conduct proper research and the persistence to understand different markets. Penny stocks are risky, not cheap. You must minimize risk through practice and due diligence before you can work towards your penny stock fortunes.
When you first begin your journey towards penny stock fortunes, I suggest you look for stocks within an industry you understand from previous unrelated experience. Consider your hobbies and interests and even previous responsibilities. Then create a list of companies associated within these areas of your knowledge. Then start collecting data and monitoring their chart performance without any intention of selling or buying penny stocks.
You want to watch for
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Before you begin trading penny stocks online, you should understand that they’re not a simple means for getting rich and they’re not the inexpensive, risk-free profit potential some online resources want you to believe.
The SEC (Securities Exchange Commission) simply defines a penny stock as a stock which trades for between 1 and 5 dollars.
You will trade penny stocks via something called an Over-the-Counter Bulletin Board — often simplified as the OTCBB — or perhaps via Pink Sheets. The low value of these stocks indicates either brand new corporations or corporatations which are in a struggle to survive. New companies sold on these boards haven’t yet proven themselves ready to be traded on the NYSE or NASDAQ. Older companies traded as penny stocks may have been penalized and removed from those major exchanges.
Despite the misleading hype you may find on the Internet, trading penny stocks online may be more risky than trading normal stocks. This is not a get-rich-quick scenario and if you treat it as such you could very well suffer the consequences.
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