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What Are Penny Stocks?



Penny stocks are high-risk investments that can be bought into for a low cost. The entire endeavor feels a bit more loose and lawless than trading on more major exchanges. This article details the basic information one should be aware of when dealing with penny stocks.

A penny stock, which is similar but not exactly the same as a micro-cap stock, almost never actually costs a penny. In general a penny stock is a stock priced under $5 according to the Securities and Exchange Commission. Other entities define a penny stock as anything under $3. Penny stocks are generally traded on the over-the-counter bulletin board, which is an entity used for equity securities not listed on the national stock exchange.

Buying Penny Stocks

Penny stocks can be bought through a stockbroker even if it is not listed on a major exchange.

Why Penny Stocks Can Pay Off Big

Penny Stocks are subject to a lot of volatility. There are times when a stock bought for $0.10 rockets up to $10 in the matter of a month. Some investors have had great success putting in very little money and gaining a fortune. It’s all about paying attention and making wise investments.

The High Risk Nature of Penny Stocks

Penny stocks have problems that others don’t have. Because of the low trade volume, an investor might have the problem in that when they are ready to sell there is nobody to sell to because the stocks are traded so infrequently. It is entirely possible that an investor could simply be stuck with them due to a lack of buyers.

Lack of Reporting Standards

Stocks that trade on the OTCBB have somewhat lax reporting standards. Registered companies have to stay current with SEC filings, but that’s all. Dishonest companies who are delinquent in submitting filings are still available to investors.

The problem is so widespread that stockbrokers are legally required to provide investors with an outline of the risk of penny stocks.

Spam Mail and Penny Stocks

Unscrupulous penny stock companies send out a lot of spam mail. They also infiltrate message boards and other online discussion areas. Scammers often buy a worthless stock and then convince people to buy it at a higher price. The scmmers proceed to sell off their own shares at a profit. This is known as a “pump and dump” scam.

Investigate the History

A lot of penny stock companies are either brand new entities or once-big companies approaching bankruptcy. The investor will be dealing with a company that has no track record whatsoever, or a company that is on the verge of death. Stock potential is extremely difficult to assess in these situations.

Most Big Companies Did Not Start as Penny Stocks

Some investors labor under the belief that many major companies started off as penny stocks. This is not the case. The adjusted stock price of a major corporation takes stock splits into account. Many major companies started off trading at $15 or more. Some penny stock companies will make it huge, but more will not.

Offshore Dealings

The SEC allows companies selling stock to foreign investors to be exempt from registering stock. This has lead to a situation where offshore brokers buy low and then sell back to other unwitting U.S. investors through dishonest brokers at a higher rate.

Profiting From Penny Stocks

The key is to invest in companies with long-term business operations rather than incorporated shell companies. The financials must be examined to see if the company files on time. The footnotes should be scrutinized for accounting issues and related-party transactions.

Penny stocks are full of risk, but they can generate a lot of money. Many OTCBB companies are putting in the effort to be held on the level of Nasdaq and the NYSE. Investing requires a bit of bravery and a sharp eye. Financial success lies in thorough research and the ability to see through deception.

A penny stock is a company that deals in the trade of shares below $5 in value and fails to be listed in the stock exchange markets because they fail to meet the qualifications that an exchange market should have to be listed among the markets. There are a lot of factors that a person has o consider before they can take part in trading in a certain penny stock because the terms and conditions are different for every stock market. They are public companies that are allowed to trade in low value stock to enable the traders who do not have the large amount of capital to use in the stock exchange market.

What traders should consider

  • There are a lot of factors that traders should consider before they can join a stock exchange market to take part in the trade.
  • One has to know the probabilities to way, if the value of the shares will rise in the next hour or day, they have to keep the shares they have to sell when the prices will be favorable and make more income in the process.
  • The traders will, however, have to sell their shares with the current prices in the market so that they should not make losses when the prices eventually fall in the next period when they will trade.

Stock exchange markets to visit

There are a lot of such penny stock exchange markets that engage in such activities. Though not listed among the stock exchange markets because of the low value of shares that they deal in they are legally recognized by the government because they give the traders to buy shares of the companies that have low rating in the market.

Fees charged

The companies are public companies that have different fees charged for any trader to register in the firm and take part in the trading of shares. The fees charged is not as much as the one charged in the larger stock exchange markets that have large number of people visiting to trade. Most people do not like using the penny stocks in trading because of the low returns that are always expected after one has put his or her bid.


For one to be allowed to trade in the penny stock market, they should have the required knowledge and skills that is applied in the sale and guying of shares within the stock market. They should also have a god amount of capital that they can use for making bids during the trading process.

Where to put your bids

If one is wondering which type of investments they should put their bids in then, they should consider the past trends of a given stock in the market. If it has been increasing in the recent past and people still like it, then there are high chances that the increase will continue so the trader should invest a lot of his or her capital in the specific share.

Time charts

Different companies have different time charts that they use in their operations, and the traders should consider those that have a shorter time chart because it will give them an opportunity to trade many times and increase the amount of income that they can get at the end of the day.

Regulations to make

There are a lot of regulations that one should take before they can invest their capital in a given stock in the market. If one is not sure of the future changes in the next duration of time, they should not invest a lot of their capital in the stock. If they are sure, then they should invest a lot of their capital to increase the amount of income that they can get.

The best time to visit the penny stock market

The best time to visit the stock exchange market is when they expect the rates to increase so that they can make more income in the process. The times when rates are low will lead to losses or no income that they can earn during trading.


The advantage of participating in the penny stock market is that those who o not have the large amounts of money to trade in the stock exchange markets also get a chance to trade in shares.


The limitation comes to those who do not have experience in trading in shares because they may end up losing a lot of money in the process.

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Risk Warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Trading with financial products (CFDs, Forex, Stocks, Cryptocurrencies, etc.) in general and with leveraged products especially is highly speculative and not suitable for all investors! The loss of your entire investment is possible. Never invest money you can`t risk losing! Decentralized and not regulated cryptocurrency markets are also a high risk and may lead to a significant loss.


Everything on this site should not be considered as financial or investment advice. This is only a website offering information, EarlyBull is not a registered broker, advisor or analyst. Always do your own research, only you are responsible for your actions. What works for others doesn`t have to work for you.

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