Wall Street analysts, federal regulators, and many brokers and analysts believe that while risky, penny stocks can be part of a healthy and diverse portfolio. Penny stock investor stout the stock's versatility as a relatively inexpensive way for small investors to raise some quick capital. Those who are beginning in penny stock investing should thoroughly research the market before investing in these stocks.
Penny stocks are what investors and traders call microcap stocks. Microcap stocks are stocks issued by companies for less than $5.00 a share by companies that have a capitalization of less than $300 million. Companies trading penny stock may have some challenges surrounding debt, liquidity and profits. Many of these companies were once listed on one of the major stock exchanges, like the New York Stock Exchange or the NASDQ, but have been delisted because they couldn't maintain the standards. Other companies are using their penny stock offerings to monitor investor interest in anticipation of a listing on one of the major exchanges or to raise some much needed startup capital. These are growth companies and could lead investors to large profits.
Other penny stocks are traded Over The Counter-Bulletin Board (OTC-BB), electronically on-line. You can also invest in penny stocks using the pink sheet service, which is a quotation service providing investors with information about stocks registered with it. Pink Sheet stocks do not have to file with the Securities and Exchange Commission (SEC), which makes them a little riskier and subject to potential frauds and scams. Most penny stock investors do not use a broker, but rather buy and sell using an online trading platform.
There are a number of online trading platforms that can help investors buy and sell penny stock. These websites and platforms offer a wide variety of customer service and technical support. While these sites are significantly less expensive than a full service brokerage firm, you will still be charged fees for associated maintenance, transfers, or trades. These vary by platform and firm, so investors should some research before opening account and investing.
There are a number of online resources, including the listings on your online trading platform, which provide a list of penny stocks, as well as daily trading activities for those stocks. These sites may also provide limited research. These sites also provide access to other investors via chat rooms and discussion forums. Beginning penny stock investors can glean a lot of information from these forums.
Investing in the stock market is risky. While the stock market has produced higher lifetime averages than traditional savings accounts or investment in bonds and mutual funds, it also has the potential for larger losses. Penny stocks, which are not as regulated by the Securities and Exchange Commission (SEC) may be riskier. Unless they are listing on the NASDQ micro-cap board, most penny stock companies are not subjected to the same regulations, which may increase the risk of fraud and stock price manipulation. The bottom line, however, is that investing is risky. Investors choosing to explore the penny stock market may be susceptible to more risk than other investors, but they tend to have a higher tolerance for risk and a bigger expectation for larger rewards.