What Are Penny Stocks?

What is a penny stock? How do you define it? Is it smart to get involved? Some feel that it’s not worthy of investing, but others say differently. The best way to make a decision on any uncertain investment is to find out the information and decide for yourself whether it’s a good idea or not.

The name might be misleading because the price of a penny stock can range from .01 to $5.00, and usually stays in this range for a long time. Consider where the stock is trading. A stock that is being traded outside of such exchanges as New York Stock Exchange (NYSE), NASDAQ, or other major exchanges, is still classified as a penny stock. These stocks use different quotation services than those listed above, which would be the Pink Sheets or Over the Counter Bulletin Board (OTCBB). Do not forget to think about Market Capitalization. Multiply the value of each share by the number of total shares of stock a particular company issues for the market capitalization. Some people think that if a market capitalization is less than $10 million, then it is a penny stock as well.

Some details might vary from country to country. An example is a company with market capitalization higher than $10 million that may fix the price for its shares to less than $5. A different company may start trading as a penny company but, over time, the price of its share can go up. It can be a penny stock company in the morning and by the noon it might lose this status, although this is not a common occurrence.

Are penny stocks a good investment? The term “penny stock” is often considered to be pejorative. Many people don’t like it and don’t invest money in it. There are some reasons that make sense. A lot of companies associated with penny stocks may either be going down or not fully-fledged, which is why the price of their shares is so low. A big problem is that penny stocks trade infrequently. This is a hint that once you buy penny stock shares, you may experience some difficulty in selling them. It may be harder to find quotations for some penny stocks. People investing in penny stock should be aware and prepared.

It is possible that investing in penny stocks can work out. Investors should always do some research before committing to buy. Try to learn about the company as much as possible. What do they sell, or what service do they provide? Take a look at the financials of the company. An absolute key is to look at the trade volume. If a penny stock company has good trade volume on a regular basis, also known as liquidity, then the chances aregood that the investment may pay off in the long run.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.