Typically, as the name suggests, a penny stock is a stock priced at less than a dollar. Some investors put their own definition into place for penny stocks, such as any stock priced below fifty cents.
Others consider a true penny stock to be a stock worth less than one dollar that?s trading off of a major stock exchange. Again, it all depends on who you ask because officially, it doesn?t matter if the stock is on a major exchange because the defining element is the price of the stock, not where it?s being traded.
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.
You can invest in penny stocks with a small initial investment, but you usually have less information to go by when it comes to evaluating the company. Larger companies selling more expensive stocks are required to file reports with SEC.
Although penny companies are harder to research, they offer the opportunity to get the foot into the door of up and coming companies. The amount of research you have to undertake might be greater, but your chances of payoff are equally great.
It is possible for you to find out if a penny stock company has made their financial information available to the public. Doing that is better than just believing someone else when they say a company is worth investing into.
If you run into any flags, such as if the auditors haven?t certified the company?s financial statements, you should be careful about investing. It?s also worrisome if the auditors announce a company doesn?t have enough funds to continue operating.
No minimum standards have to be met by penny stock companies in their listings, since they are done on the OTCBB (OTC bulletin board) and the Pink Sheets.
Where does risk play a factor in penny stock investing? Since you have less chances to learn of a penny stock company?s financial history and potential for future earnings, you take a bigger chance even if the initial investment remains fairly low.
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