Before you get too excited about the idea of day trading penny stocks, you need to understand what a penny stock is as well as the potential risk involved in trading this particular type of stock. Question a handful of investors about simply the label for stocks that trade under five dollars and you’ll likely receive several answers, including penny stock, nano stock, or micro cap stock. Often these three terms are used interchangeable, even though they are not exactly the same thing. Micro cap stocks are defined by their market capitalization while penny stocks are largely defined by their specific price per share.
Most people become interested in buying penny stocks online because of the potentially high pay off that can come with these stocks. But these stocks also have a great down side that is just as likely, or even more likely for the trader to experience than the great pay off. Because of the nature of penny stocks many people try to game or manipulate the system to their own advantage, but to the detriment of the other stock holders and sometimes the company of the stock they are gaming.
Once you learn the good and bad of buying penny stocks you will also need to decide whether to use one of the many online stock brokers account or a personal broker.
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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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As many of you who followed my blog probably noticed, I never fully fleshed out this new site when I moved here from my blogger blog. Did I just slack off? Well, maybe a little.
But the real reason for this was that I’ve undergone some intensive study of the penny stock industry in recent months that has led me to create some fundamental changes in the way I approach trading penny stocks and the way I feel about the industry.
Read Evolving Through Penny Stock Epiphanies
