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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