| If you're looking to get started trading stocks but | | | | From a day trading perspective, these small stocks |
| don't have a ton of money to start with, take a look | | | | are great because of the potential volatility (due to |
| at Penny Stocks. These low priced companies offer | | | | lower trading volumes). Any small push to buy or sell |
| the potential for enormous profits, along with some | | | | medium size volumes of a penny stock could drive |
| potentially high risks. | | | | the price significantly, and predicting and taking |
| Within the United States penny stocks are officially | | | | advantage of that volatility is how penny stock day |
| defined as a company trading for under $5 per share | | | | traders can make a fortune in short periods of time. |
| OTC. That last part means "Over The Counter" | | | | Another significant difference between penny stocks |
| which is the official name for transactions that take | | | | OTC and the exchanges is that the exchanges |
| place directly between the person who owns the | | | | require companies they list to follow all sorts of rules |
| stock and the person who wants to purchase it, | | | | involving accounting methodology, reporting to their |
| completely different from the way stocks are traded | | | | investors and so forth. OTCBB traded penny stocks |
| on the exchanges. There are two main over the | | | | only require an annual SEC filing to be made on time. |
| counter venues for listing and trading penny stocks, | | | | Pink Sheets stocks have no requirements |
| known as the Pink Sheets (or.PK) and OTCBB. | | | | whatsoever. For these reasons, and the fact that |
| Because penny stocks don't have the same volume | | | | these tend to be smaller companies with a lower |
| as stocks traded on the big exchanges, the prices | | | | profile and generating less interest from the financial |
| tend to fluctuate more rapidly and with seemingly | | | | world in general, there tends to be a severe lack of |
| very little to push them in either direction. This is a | | | | good information. |
| double edged sword: it provides penny stock traders | | | | Companies may offer information voluntarily but |
| the primary way to make their profits but it also | | | | many won't because putting together reports is a |
| makes for a market that can sometimes be | | | | waste of resources and unless they're required to, |
| manipulated by scam artists. | | | | they don't see it as a good use of business |
| As a general rule, never act on any free stock tip. If | | | | resources. That doesn't necessarily make them a bad |
| you see someone in a forum (or receive an email | | | | company but it makes it harder to weed out the bad |
| from a stranger) saying a certain stock is about to | | | | ones from the good ones. |
| explode, chances are he already bought a ton of it | | | | There are services that do this sort of research for |
| and is trying to artificially drive the price up so he can | | | | paying clients though, and you could become one. |
| sell (and leave everyone else holding the worthless | | | | You can also do the research yourself, it's not |
| stock). Don't fall for it. | | | | difficult. It just takes a bit of know-how and a |
| Once you get past the scammers though, there is | | | | decent amount of time. The rewards can be |
| some serious money to be made. Companies like | | | | phenomenal though. Penny stocks are a high risk |
| Ford, Xerox and GM were once penny stocks and | | | | investment, but risks can be mitigated and the better |
| among the thousands of companies being traded | | | | the information that you use to make investing |
| over the counter chances are a few of them will | | | | decisions, the better your investments will turn out |
| eventually become giants of industry. Scout them out | | | | on average. |
| early enough and you could make a fortune. | | | | |