The allure of stock market leads many beginner investors to believe that they will be the next Warren Buffet. No matter how many people succeed in trading stocks, it is still a business that takes dedication, patience, and learning. Penny stocks are the best, and the safest gateway to the big game.
What Actually Makes a Penny Stock?
Generally speaking, penny stocks consist of inexpensive shares of relatively unknown and unestablished companies, usually startups. Their low price is the result of those companies’ obscurity. In other words, not many investors want to invest into a company that has no financial report to show.
Starting Out
Just like regular blue-chip stocks, penny stock shares can be purchased through a stockbroker, but they are usually traded on online listing series like OTCBB and Pink Sheets.
Over-the-Counter Bulletin Board is a quotation board managed by National Association of Security Dealers that lists real-time quotes, last-sale prices, and volume data for OTC securities. It is less risky than Pink Sheets, because stock companies listed here have to submit current financial statements with the SEC or other insurance regulators.
Pink Sheets is a daily quotations publication that the National Quotation Bureau compiles.. It includes a huge network that compares price and trades to a wide spectrum of securities on the OTC stocks. The risk involved with Pink Sheets is that companies quoted here are not required to file their financial statements with SEC nor maintain minimum transparency regulations.
Penny Stock Gains
These inexpensive securities have gained much popularity due to their unpredictable fluctuations. An unknown startup may quickly develop into a big player in a particular industry; which is followed by the increase in its stock value. The fact that you bought its share package for a couple of dollars per share makes the profit even bigger. In practice, it means that a $0.03 stock can jump to $12 in the matter of weeks. Such “ shooting stars” are rare, but when you find the right stock, the reward is astonishing. If you buy 1,000 shares at the price of $0.03 per share, and fail to make a profit, you have only lost $30. This is one of main reasons why penny stocks are safe for beginners. They provide good trading experience with little risk.
Bad Penny Always Turns Up
Unfortunately, penny stock arena is ripe with scams and schemes aimed to take pretty pennies from unwary investors. If you ever subscribed to an obscure web site offering investment tips, your mailbox is probably spammed with loads of newsreels, brochures, and free tips on where to invest. They might even send you which stocks are going to explode through the roof. In most cases, these mails are the façade for coordinated inflating schemes with a purpose of hustling as many people as possible into buying those shares. When this happens, it inflates their price far beyond their real value.
Penny Saved is a Penny Earned
Now when the profit potentials and risks involved have been explained, there is no reason why your trading experience shouldn’t start today. There are a few helpful tips on how to hunt for lucrative penny stocks.Try to spot and avoid “shell” companies that are only incorporated on paper, but carry no business operations. Such companies are used by scammers for pump and dump schemes. Look for information in a penny stock financial report. Check to see whether the statements are filed on time, do they look healthy, and who did the audit. If you catch anything suspicious, it should raise a red flag.
In the end, three things are certain about penny stocks. Their volatility makes them risky, but also extremely rewarding. They are a haven for all sorts of scams due to loose trading regulations. Since you don’t need a lot of money to play, they are perfect for beginners who are eager to begin their trading skills.