17th Feb 2010
Penny Stock Investing – What Is A Penny Stock?
Before you you get involved with penny stocks be sure you know what a penny stock is and how to proceed. Penny stock investing can be a lucrative endeavor only if you do your research and supply the effort.
There is actually no hard and fast definition for a penny stock. Some describe it as stock selling for less then a dollar while others say under five dollars. You will find some who only
consider those traded in the “pink sheets” while others include the whole OTC market.
If a stock trades at or below five dollars per share and is traded in the “pink sheets” or on NASDAQ it is considered a penny stock according to the the Securities Division. A bona fide penny stock will not have noteworthy service history and it will have under four million dollars in net assets.
Now let’s say a company is doing real business, such as manufacturing, has inventory and equipment as their assets and even though their shares are low priced they are not considered a penny stock by the Securities Division.
Penny stocks are traded in the over-the-counter (OTC) market, not on the stock exchange market. A portion of the OTC market is the NASDAQ National Market which are part of the NASDAQ National Market System, even though the NASDAQ itself doesn’t trade penny stocks.
You should also know there are there are two other parts of the OTC market, the non-NNM NASDAQ securities and the NQB (National Quotation Bureau) service, commonly known as “pink sheets.”
The appeal of penny stock investing is that you can easily begin investing in them with a modest sum of money. However there’s a lot less information available concerning them, making it more difficult to do detailed research. In contrast to large companies whose
stocks trade higher you won’t be able to gain access to reports filed with the SEC for penny stock.
While you do not have the benefit of having this particular information up front penny
stock investing can still be a great way to position yourself to take advantage of an up and coming company who has a high likelihood of success in ths future. If you put forth
the effort and do research of your target company you will be rewarded in the long run.
After you locate a penny stock you believe offers a potential for a good return you can start researching it by finding out if they have make their financial records available to the public. Never take the word of others who say you should invest in a certain penny stock without first doing your own investigation. Before you take someone’s so called hot tip and run with it, go to Las Vegas because the odds will be much better.
Some red flags to look for in these types of stocks are when the auditors have not filed a certified financial statement for the company or when the auditor declares that the company
may not have enough capital to keep it operating.
The cost of one’s initial investment when trading penny stocks can be really low which causes it to be very appealing. However , you have to be conscious that these stocks are very risky because it is extremely difficult sometimes to find a way to check the history of
some companies and thus you can occasionally be trading blindly with the hope that things will move your way.
As you have most likely gathered from the above information, penny stock trading can be quite involved. This is reason enough to make sure you do not go into it blindly without first doing your homework.
David Newman is an investor. The penny stock market can be lucrative if you are willing to put forth an effort to succeed. Learn more about penny stock by visiting Penny Stock Investing.http://pennystockinvesting.com
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