What are Penny Stocks?
Penny Stocks trading has become perhaps one of the most lucrative options of making money by investing funds in shares of different companies on a long term basis. As a result, many new branches of stock trading have emerged up out of which penny stock trading holds a great amount of importance. Before moving on describing penny trading in details, we first need to know its definition.
As the term defines it, penny stocks are those stocks that are traded for less than $1/£1. That means, any stock having a price of less than $1/£1 is automatically categorized as penny stock. These stocks are backed with high levels of risk in investment with relatively lower amount of capital and expertise required than trading normal shares of companies. Many people are in the craze of becoming millionaires by investing in penny stocks but in order to be a successful one, there needs to be clear and efficient evaluation of these stocks to learn the ins and outs of trading.
These stocks are not traded in the stock market, unlike the standard shares of companies, but over the counter or at the OTC market. However their functioning of trading is not very different from that of ordinary shares. You still have to hire a broker for all types of trading activities related to buying and selling these shares to earn profit on them.
Stock trading has allowed many investors to open new doors of investment and money earning opportunities in this field with penny trading as a lucrative one. However, before indulging in this trade, the stock investor needs to be certain to gain enough knowledge and start from the lowest possible investments to avoid losses.
Since these are extremely sensitive stocks that can fluctuate as much as 50 to 80% at a single time, many long term investors and financial advisors seem to avoid these. The get rich quick scheme just does not work anymore and most of the times these stocks are used to trick many investors by con artists to get the precious investments of short term speculators destroyed in seconds.
Usually penny stocks are issued only by those companies that are small in capitalization, paralleled with high volatility & speculative shares. This makes the trading either very successful or a big failure for the investor. These companies are not listed in according to the requirements of the stock exchange as ordinary companies are. These firms usually get registered with limited capital and minimum listing requirements.
Penny stocks have historically been rated as top favourites for many people but only by those having a successful stream of stable income in the long run. But, that in no way guarantees certain performance of the same in the long run. Many investors make silly mistakes of directly investing in these shares instead of first spending some good amount of time researching them and then choosing the stock wisely. This eventually leads to failures and frustrations in the long run. You certainly, in any way do not want to fall in the category of these people. As a result, ask a financial expert and then move on with the decision to lower the amount of risk associated with them.
In a nutshell, penny stock trading is trading in stocks with a price less than $1/£1. Some websites and financial advisory firms categorize even those stocks with less than $5 per share value as penny stocks too. Whatever the definition be, the investor has to open his eyes and ears to steer clear of any thoughts and should take responsibility of losing money in case the stocks turn out to be issued by fraudulent companies.