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. Buying penny stocks online is a serious business and you must do your due diligence.
Trading Penny Stocks Online – The Basics
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 online 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 corporations 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, if you buy penny stocks online you may be engaging in more risky investing 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.
Understand The Challenges Of Trading Penny Stocks
In particular, day trading penny stocks has tax consequences and if you plan to engage in this business you really should obtain a tax specialist who can help you navigate the benefits and consequences you’ll endure as a penny stock day trader.
Additionally you’ll find little to no background information on the corporations represented by these penny stocks online. Many — if not most — penny stock companies have little to no business history which may make it very difficult for you to surmise their direction and stability so you can determine whether or not they may be good penny stocks. Again, don’t be fooled by the many people creating the hype out there: you must invest in sound companies to consistently avoid penny stock risks and profit with penny stocks online.
You should note that when a stock is listed on the NYSE or NASDAQ, they must fulfill very specific requirements for reporting their financial status. If they fail to do so, they will be “delisted” by those major exchanges. No such requirement exists for penny stocks online traded via the OTCBB or Pink Sheets. This makes it doubly difficult to make wise, sound choices when attempting to invest penny stocks online.
Practice Trading Penny Stocks Online First
Because of these very real and widespread risks, I urge you to consider practicing online paper trading prior to engaging in trading penny stocks online with real money. This allows you to face the reality of the art of penny stocks online without suffering the financial consequences. Should you decide you “get it” and want to proceed to your attempts to gain profits through online penny stock trading, you’ll be better prepared.
When you begin to buy penny stock online, be sure to do so through an established and trustworthy online penny stock broker.
Remember that due diligence is always necessary, regardless of all the web-based hype you’ll find on penny stocks online. Don’t trust any single source and always do your own research and evaluation. I hope this helps and I wish you the best in your quest to profit from trading penny stocks online.