Investments in penny stocks are the small value shares that are traded generally in OTCBB or pink sheets. As per the guidelines provided by the Securities and Exchange Commission of the United States, the shares traded below $5.00 per share are defined as the penny stocks.
The SEC defines penny stocks on the basis of share price only and further states that these shares can be traded at any stock exchange including NYSE and NASDAQ.
Penny stocks are commonly known as stocks sold in pennies. Penny stocks are generally traded below $3.00 or sometimes even below $1.00 in over the counter market.
In over the counter market, penny stocks are traded through over the counter bulletin boards or the pink sheets. For listing shares in over the counter market, companies have to fulfill the minimum basic requirements laid down by the respective authorities.
Investments in Penny Stocks: A wise decision and through research about the penny stocks can be rewarding otherwise this is the highly risky market. You have to be careful and should never purchase the stocks being offered to you almost free or even for a few pennies.
There are some good stocks on offer and in the past a few stocks offered at 10 to 20 cents have crossed the five dollar mark although majority of stocks fails to do so.
Many people see the investment in penny stocks as an opportunity to earn a few dollars at the same time invest a low amount so that the risk is minimum. People get learning experience while trading in penny stocks. People also develop some research skill about the companies offering penny stocks.
Precautions: As investment in penny stocks is highly risky and therefore some precautions are necessary to avoid a loss in this market. As the information about penny stocks do not always come from a reliable source, you should get a second opinion from another broker before making any investment in a particular penny stock.
Do not purchase stocks in hurry as most of the time the broker will not give you sufficient time to make a decision. Think twice before making any investment and do not invest too much in a single stock.
You may get emails or phone calls about penny stocks. The brokers or companies pay for such phone calls or email spammers and therefore you should avoid investing in these stocks.
Many times a lot of rumors are spread about some of the penny stocks and you should be alert and never pay attention to such rumors. It is better to talk to a financial consultant or get a second opinion before investing in any penny stock. Many times companies or brokers may mislead you by offering free stocks or news letters, but you should avoid all such offers.
Summary: Many penny stocks has grown tremendously in the past from a mare 10 or 20 cent and crossed the $5.00 mark. Investment in this market is risky and a lot of rumors prevail so a wise decision can make you some profit otherwise you may lose your money.