How do I get into the Penny Stocks Market?

If there is and advice that you take it can be summed up into one statement: do your homework. Start by going on to the internet and looking up websites like Pink Sheets and get yourself acquainted with the market. You will see companies listed there and start to understand the over-the-counter market. There are business journals and publications, as well as blogs and discussion forums that will all give you some insight into this market. Remember that some of the best advice that you can get is the unsolicited advice of someone who has been there. They will be able to tell you their experience and perhaps help you to avoid making mistakes that they made before they happen.

Not everyone who wants to get into the market is the same. Sometimes people are lured to the penny stocks market because they are new to the stock market and want to get in and get a feel for it without having to invest a large sum of money. So long as these folks understand the volatility, and that big gains and big losses are possible, then that is fine. There are also those investors that are experienced with trading on the bigger markets, and are looking for a little excitement. They may have done well in the larger companies and feel like they have a little extra to gamble on a smaller player. Some things are the same for everyone who moves into the penny stock market; you must research the company that you want to invest in or you are much more likely to lose what you have invested than you are to realize substantial gains.

If you can find a broker through someone that you know that is the best way. If you don’t know anybody, then go out and find one and make sure to ask them lots of questions. If they don’t have the time to answer, or worse if they don’t know the answer then you need to move on. You should also make sure that they have not been subject to any disciplinary action by the SEC. Do this and you will be more comfortable and safer as you explore the exciting world of penny stocks.

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The Basics about Penny Stocks

You may have heard about these penny stocks and wondered exactly what they were. If you have had an email address in the last ten years then it is likely that you have seen email advertisements that are touting some penny stock and telling you that you can strike it rich for very little money down. These kinds of scams exist in many different areas of life these days and have become prolific because of the internet. They have given penny stocks a bad rap and it is not a true indication of what they are.

Penny stocks get their name from the low issue price. It is not to be taken too literally, though. They are rarely a penny, although it is possible. Their per-share value is capped at $5. There are some out there that define penny stocks in different ways such as market capitalization but this is not really accurate. While it is true that penny stocks are almost invariably small capital companies this does not mean that it is how they are defined. It is more likely that they fall into this category due to smaller capital but the Securities and Exchange Commission gives the stock price as the indicator.

So you might ask what is really the difference, and why would they have another category of stocks? Really, the thing that sets penny stocks apart from other stocks is where they are sold. Most of the stocks in companies that you are familiar with are sold on large stock exchanges like the New York Stock Exchange or the NASDAQ. Think of companies like General Motors or Coca Cola and you get the idea. You might not have heard of every company on these exchanges, but they are all large enough and offer enough stock to be there. They are also governed by the SEC and are watched much more closely with respect to financial reporting and transparency.

The penny stocks themselves are not governed by the SEC, but the brokers are. There are certain things that they are expected to do and in fact required to do. Technically they are not to solicit penny stocks, but must receive an order for stock from the buyer. The broker should always provide the advice that they have given you in writing, and they are required to send you a written report every month that makes it clear what you are holding along with the current price of the stock. It is wise to do a little checking with the SEC when it comes to your broker. You don’t want to find out after the fact that they have been disciplined for breaking these rules. There is no need to learn a hard lesson this way.

These penny stocks are traded on the over-the-counter market and they are not always that easy to find. The over-the-counter market is basically for those companies that do not meet the minimum standards to be on the major exchanges. They are sold by brokers, usually who deal primarily in this market.

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Penny Stocks – Truth and Fiction

Plenty of information exists about penny stocks, and it pays to know what is real and what is not. Penny stocks are somewhat of an unknown entity, many people know the name but not everyone knows how they work or whether or not they are a wise investment. They can be for the right investor.

First of all, whatever you have received in your email inbox can probably be called the fiction part. If someone is promising big returns on any stock, of any variety then they are telling you that they can see into the future and that just isn’t the case. If they were actually able to tell what stocks were going to rise in price so much do you not think that they would be buying them all themselves? You would think that they were also so rich that they wouldn’t need to send emails to people they don’t know asking them to buy. They can sure sound tempting, but stay away from that kind of thing. The stocks behind these communications often don’t exist at all or are highly inflated. If you are wondering how a penny stock can be inflated, just think of it this way; if it is worth 2 cents and it is sold for 12 cents, it still seems like a bargain right? At six times its value it is not that much of a bargain after all.

Penny stocks might seem to be a little suspect because they are not traded on major stock exchanges. Don’t hold this against them. It is because they do not qualify to be traded on a major exchange. That doesn’t mean that they are traded in shady back rooms or anything. They are traded in what is called the over-the-counter market. This is simply the marketplace for those shares that are not traded in the volumes that the larger corporations see. They still need a broker to be bought and sold. The broker is required to provide a written report of what they have purchased for you. It should also give the most current available stock price and it has to come at least once a month.

They are risky. There is no disputing that. If anyone ever tells you that something is a sure thing, or it is a completely safe bet they are not being honest with you. Either that or they really don’t know what they are talking about or you should stay away whatever the case may be. These are speculative stocks and should take up an appropriate portion of your investment portfolio.

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Essentials of Trading Penny Stocks

People who are looking to trade in on penny stock market might be thinking how to trade the penny stocks. Not like standard stocks, all these are not been traded in stock exchange, however in over-the-counter market. You will need to hire broker in order to perform your deals, both buying or selling shares. Basic thing that you need to ensure is having enough money in account that you are making use of to cover both share cost & broker's commission and fee.

Among best methods of trading a penny stocks is looking at an so-called pink-sheet web site. Know your penny stock's ticker sign and which market that stock is positioned in. While dealing with the penny stocks, you must buy and sell shares in very large amount, multiple by thousand, for example, or else you might end up paying additional money to the broker in commission.

Also it is helpful to know following tips if you decide which type of penny stock you have to trade.

First, search about company and see how they are doing. Penny stock companies are very fresh & are still to make some sales in market. Find if they are earning money, and how many products that they are selling on daily basis as well as their plan to make their consumers happy & returning.

Second, look in how company is earning their money or are they selling any advertisements or products or offering different services or do they have any stores or a website?

Third, delve in a trend of their marketplace. Is it on rise and find if products and services that they are selling are famous. Learn about the competitors as well.

Fourth, know how huge is the company debt by looking in their quarterly reports online. Having huge debt charges lots of money and can potentially cause company to close & stock values may sink to zero.

Fifth, focus on the news stories. Good news story regarding company might possibly send stock price to sky.

You would as well have to decide & tell the broker whether penny stocks order of yours is limit order or market order. So called market order is order where you are ready to pay whatever your market price is for that shares you like. Alternatively, for limit order, you need to specify limiting price, which must be attained for your order in order to get executed.

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Are These the Right Thing For Me?

One thing is true. They are not right for everybody. Because of how they are sold, penny stocks can be hard to locate. The difficulty is that they are not all created equal, and when you do find one that looks like a good investment, you want to know what you are getting into. The problem there is that you might not have the time to do that. Unlike the stocks on the major markets that you can buy any time you want, these shares are more limited and someone else might move in on you. This lack of availability can also mean that there is a risk that when you wish to sell you might not be able to do that so easily. If the stock price starts to fall, sometimes other investors will not want to climb on to a sinking ship and you are left with stock that has depreciated in value so much that it is worth very little or nothing at all.

Penny stocks are very speculative and should not make up the majority of your portfolio. If you have a little extra money that you would like to play around with then by all means look into the penny stocks market. You should be prepared to lose what you have invested, especially if you invest in only one company in the over-the-counter market. Do not gamble the kids’ college fund on these. They are just too volatile. They certainly can make money, and in fact sometimes penny stocks come up really big. There is more potential for a small company to grow and have their stock double in value over and over. Don’t believe what you see in emails, and don’t bet the farm away on these and they might actually be a fun and exciting way to invest your money.


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Are There Drawbacks?

There are some drawbacks to the trading systems. One of the most difficult things can be the complexity. This is sometimes not simple software to use. Developers of trading systems don’t always have their focus on the user-friendly nature of the system. Sometimes in an effort to get the system to do what it is designed to do, the streamlined of the user functions is not there. Particularly if a system is newer and has not had additional versions to work out the bugs and implement improvements you might find that you get a little frustrated trying to iron things out.

Like anything, there are scams out there. Lots of systems will promise things that are simply not believable. That is because you should not believe them. If you have seen the late-night infomercials with the guy who spends an hour a day trading and doesn’t even have to click then goes outside to play with the kids in the huge yard and poses beside the Mercedes then you probably know what I am talking about. If this system worked so well, wouldn’t the people that made it simply use it and play with the kids instead of making infomercials to sell it to you for $49.99?

Also beware of the pitfalls of slippage and commissions. Slippage happens on the forex trading systems, when the time lag between when you place your order and when the currency is purchased means that there is a difference between the two prices. For the securities market the commission has to be factored into the equation. If the commissions you pay on your trades catch up to the amount that you are making then you are working for free.

Some of them just plain don’t work. You might get something that looks really good on the screen but has been designed by some high school kid in his garage or basement and doesn’t do what it is supposed to do. If you want to evaluate which ones not to go with, anything that does not offer a free trial period would be a good start. Try it for a month and see how you do. If you do well then you can think about moving forward. Here is something to consider though; half of people will do better in real time and half of people will do worse. It is just the law of averages so be prepared that your success in the trial may not be matched when you get into the market.

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Are There Any Drawbacks to Online Trading?

There are things that can make online trading dangerous, but the dangers can be avoided with some care. One thing that is different is that you are not actually talking with a live person every time you are making a trade. This means that you might be missing out on some of the advice that you would normally be getting from your broker. You could end up buying the shares of a shipping line whose flagship vessel just went to the bottom of the ocean. While that is not likely, you can get the point. This is not a big deal for the seasoned investors, but if you are new to the game it might be nice to get some advice when you set out to buy or sell penny stocks.

Sometimes technology is not without its frustrations. When you are dealing with a broker personally you simply instruct them on what to do and they do it. How they do it is not your problem, that is their job and they will figure it out. There are times when you get everything set up and installed as it should be and it just plain doesn’t work. Computers aren’t like bicycles. You often can’t tell what is wrong and you need to get someone under the age of 18 to come in and fix it for you. That can be frustrating. Computers crash, power goes out and your kids can download a virus. Beware that there can be barriers to trading online to go along with the conveniences.

While you have the convenience of using your computer to trade, keep in mind that if you are using a desktop, you probably have the software installed on it to do your trades. If you plan to go away to the cottage for the weekend or on vacation, that means no trades unless you pick up the phone and instruct your broker the old fashioned way. It might be a good idea to try this at least once before you go away just to make sure that you can do it and there won’t be any barriers to making a trade. You can probably go online somewhere else to get information but to execute the trade you will need to know how to contact your broker.

A laptop is a better way to go if you have not already bought a system to use for your online trading. Buy one that is powerful as you don’t want to be back in the market in a year or two because the hardware is dated. Think about getting a voice-over-internet-protocol phone number. You will pay much less for phone calls from anywhere in the world and you can use your laptop to do it. Get a headset that is made for just that purpose and you have a traveling office that will save you money.

You will probably agree that the benefits of online trading far outweigh the drawbacks, just take the time to get set up correctly and educate yourself and you will do just fine.


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