You May Be Asking Yourself What are Penny Stocks?

So What Are Penny Stocks? Penny stocks are common shares of publicly owned companies that trades at prices below US$5 per share. It is usually not listed on the bourse and fails to meet certain criteria mandated by the Securities and Exchange Commission (SEC). These stocks may be considered as highly volatile investments and can be manipulated through pump and dump schemes.

Penny stocks in the United States are often traded via Over the Counter (OTC) Bulletin Board or Pink Sheets. The SEC and the FINRA (Financial Industry Regulatory Agency) regulates the sale and trade of penny stocks in the United States.

Penny Stock Tips

The allure of investing in penny stocks is irresistible to most stock investors. There is little money involved and the promise of a big payoff makes one want to dip into this investment portfolio most times. However, penny stock trading is also a good way to lose money if you don't understand the game.

Manipulators and scammers normally abound in penny stock trading. Nevertheless, despite inherent dangers, a great number of people still want to trade on the pennies. It would be wise to follow certain guidelines when you do penny stock trading. These would include:

1. Ignore other people's stories of a successful trade – most of these stories are sent via social media sites and emails. Avoid the hype and insist on trading penny stocks that are hitting 52 week highs and having solid growth rates through the years.

2. Sell fast – the allure of trading in penny stocks is that you can make 20% to 30% of your investments. If you hit this mark, sell quickly. Do not be greedy and wait for a 1000% return. It is bound to bomb in your face if you find out later that the stock may just have been pumped up.

3. Do not sell short, if you are not a professional trader – shorting penny stocks that are pumped up may be attractive to some investors but there is an inherent risk involved. Movements of penny stocks are too volatile and you can get burned half of what you invested in a short squeeze.

4. Volume trade – investments should be concentrated on penny stocks that trades around 100,000 shares a day. Low volume could mean that you may find it difficult to get out of your position at some later time.

5. Never trade in large positions – do not trade big. Ten percent (10%) of the stock's daily volume is a safe position as regards trade sizing. Limiting your share size could make you get out of your position faster.

Thank you for reading our article titled What Are Penny Stocks.

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