A penny stock is any stock selling for less than a dollar. At times, some investors use the definition to indicate stocks that trade for less than fifty cents.
Some consider a penny stock as a stock trading off of a major stock exchange, which is worth less than a dollar. Where the stock originates is not all that important in the definition, since the main defining factor is really the price.
Penny stocks are sometimes called differently. Day traders and investors use that term interchangeably with terms such as nano, micro, and small caps. It is usually companies with small capitalization amounts that offer penny stocks.
Even if penny stocks are easily affordable, finding information about the companies selling the stock is more challenging. When dealing with larger companies selling stocks at prices higher than a dollar, it is easier to find information based on reports they are required to file with SEC.
But even though penny stocks don?t afford you that luxury, it?s a way to get in the ground floor of investing with an up-and-coming company that has limitless potential. If you don?t mind to do a little extra research, penny stocks can payoff quite beautifully.
If you find a penny stock that you?d like to consider, you want to check to see if the company has made their financial reports available to the public. Don?t just take someone?s word for it that a certain penny stock is worth investing in.
If you notice anything questionable, such as if the auditors haven?t certified the company?s financial statements, you should carefully back out. Another red flag is if the auditors have declared that the company may not have enough money to keep operating.
Penny stock investments don?t have any minimum standards for their listings, because they are done on the OTCBB (OTC bulletin board) and the Pink Sheets.
What is the risk of penny stock investing? Even if the initial investment is fairly low, you have less ability to make decisions based on financial history and potential.
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