What Are Penny Stocks?

Penny stocks or micro-cap stocks, are stocks with trading values below $3.00 a share and with market caps below $200 million. These stocks are generally issued by small companies, start up or growth companies, or companies with liquidity, capitalization, debt, equity, or sales and growth challenges. Penny stocks are low priced stocks that offer part time investors an opportunity to invest in smaller amounts of money and still see very attractive returns from it. They are sometimes referred to as "the slot machines of the equity market" simply because of its concept and the great financial risks involved. And since these stocks are not as closely regulated by the Security and Exchange Commission (SEC) as other, major stocks, they tend to be more volatile and a riskier investment than other, more traditional stocks.

Penny stock trading is a profession which has rampant fraud and tons of manipulation. So, before getting into this profession, you have to fully understand its concept and how best to trade in the market to make profits. One important to know before you start your pursuit into the world of penny stock trade, is that is this type of stock trading is different from the conventional one you are used to, and they are generally not traded on major stock exchange, but rather on other platform of online brokerage firm. There are a number of websites and online brokerage firms that offers penny stock trading on their platform and thus giving investors the opportunity to invest their money in penny stocks and make profits with ease.

You will need to know, that, though, this business has financial risk, but there may be a good place for penny stocks in the portfolio of an advance and highly experienced investor. It is imperative for investors to understand the latest techniques in the world of penny stocks, and always trade in accordance with the standard safeguard rules of trading in the industry, as this will be of great help to guide and propel them to pinnacle of success. As a first step to trade stocks, newbie should know various techniques and strategies that could bring in a profit. This can be obtained from a variety of traders who are experienced in reading the market research and various things about penny stocks. There are also number of experts and stock brokers, who can offer the necessary professionals guides, market tools and expert's opinion on how and when to trade in the market. And in addition to this, the newbie can also join online forums and reliable websites that discuss penny stock trading and offer assistance on how best to utilized the available trading tools for complete optimization.

Important Things To Know Before Trading Penny Stocks:

1: Over-The-Counter Bulletin Board ; It is very important and helpful to consider the use of over --the --counter- bulletin board , before you begin trading on any of penny stock platform. This is an exchange through which investors can select and trade stocks that do not meet the listing requirements of a major exchange in the market. So with the use of this, you will be able to select the low risk penny stock that can guarantee you profits in the long run.

2: Consider DTCC eligibility; The Depository Trust and Clearing Corporation {DTCC}, is the body that handles clearing securities for brokerages. So before you trade a penny stock, it is necessary to inquire from your broker and confirm if the penny stock is DTCC eligible or not, or if it has been restricted. This is very important, because if the penny stock you are trading is either restricted or not DTCC eligible, you will likely be charged enormous amount of money in fees, and you probably won't be able to easily sell that penny stock in the future.

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