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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