I am sure most people know of penny stocks from the infamous Martin Scorcese directedWolf of Wall Street film, but most people know next to nothing about the penny stocks that made Jordan Belfort rich. These small stocks have made countless investors a huge profit and all at very little outlay. Penny stocks are very risky and hence require research in order to be successful. The rapid movement of the stocks makes them have a large upside but this same movement makes them extremely dangerous. These stocks can be easily traded and I can educate you on how to trade penny stocks successfully so you can start as quickly as possible!
What are Penny Stocks?
The allure of a giant payday is unmatched but before diving in head first you must understand what penny stocks are. Penny stocks are stocks that cost under $5 and are traded on Pink Sheets or on the over the counter bulletin board (OTCBB).
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These bit price stocks make for a different trading game than what comprises exchanges like the NASDAQ and NYSE. These stocks have gained a reputation for drama and corruption but if one does his or her homework, money can be made off of these tiny stocks.
How to Start Trading Penny Stocks
Penny stocks are not generally reported on the major news networks or blogs about money. This makes it seem like they are elusive and difficult to purchase and begin trading, but in fact penny stocks are just like any other stock – they can be purchased with your normal stockbroker. Give that stockbroker a call and regardless of whether or not the stock is listed on the big exchanges, it can be purchased.
Keep in mind when trading that penny stocks traded on quotations like OTCBB, they are monitored and checked for listing requirements set by the Securities and Exchange Commission (SEC). This may give OTCBB a bit more of a trustworthy veneer but Pink Sheets is not associated with the SEC and proves that penny stocks are still massively risky.
If you are ready to take the plunge, give that stockbroker a call and you will be on your way to trading penny stocks.
Fake Penny Stocks
While ‘fake’ may give these ‘penny’ stocks a poor connotation, in reality fake penny stocks are less risky. These are stocks traded on big exchanges that cost under $5 and due to their presence on these big exchanges are heavily regulated, thanks to our lovely bureaucrats from the SEC. This regulation means these stocks have much less potential and upside but are more reliable and much safer bets than stocks trade on OTCBB or Pink Sheets.
Why Penny Stocks?
So if penny stocks do not trade on big exchanges and are filled with risk, why should you trade them? Simple. Penny stocks in their very nature are prone to massive movements and thus can exponentially rise in price, netting an owner a massive profit when they are traded away. This is due to the lack of regulation that makes penny stocks hard to price.
Do Your Homework
The beauty of learning how to start penny stock trading is that anyone can do it! But just because it is an easy subject to pick up, does not mean it is easy to master. This is a tricky game and not for the faint at heart.
Just think of all the small time companies out there, especially since the dawn of the internet and all technology has provided. Most of these companies will never make it out of the penny stock universe and are therefore duds. Not only are there duds but legally established companies that do not actually run any business. Avoid these scams at all costs! Find companies with ongoing business operations and you have a decent lead for a penny stock.
Two other things to give a hard look at when purchasing are financials and footnotes. Financials may not be the most readily available but look at things like timeliness of filing and who does the auditing to get a decent picture of the company. The last step is to check out footnotes to ensure you are making a good purchase.
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Remember, instead of investing into value or bargain stocks meant for a major cash return in the long run on the big exchanges, penny stocks are meant to be bought and sold in a synchronized movement with the rise (and fall) of the company in question.
Learning how to trade penny stocks is fairly easy and you can certainly start today! Just remember, do your research and check everything before making a purchase. You do not want to end up with stock you cannot move! Looking for clues like business operations and financials will provide leads to decent stocks with potential.
The mercurial movement of the market can make your stock explode and provide an amazing profit to you, all from a very low outlay from you. Now you know how to start trading penny stocks and can start your portfolio today! Let me know how you do!