Investing in Penny Stocks

Many beginner investors try out investing Forex Bonus in penny stocks first before jumping in to other kinds of stocks. Penny stocks are those companies sporting low share prices. The reason why many starting investors invest in penny stocks is the possibility of holding thousands of shares with just a relatively small amount of capital.

You can gain a substantial amount of profit when the Forex Reviews price steps up into the multi-dollar level. That means a few cents of gains per share can lead to high percentage of returns.

However, penny stocks are also considered to be highly speculative types of investing. They are also inherently riskier than other asset classes. There are various reasons for this, and some of which are their lack of liquidity, small market caps, limited following and disclosure, and large bid-ask spreads.

Definition

According to the Securities and Exchange Commission, or SEC, a penny stock is a security issued by a small- or micro-cap business. The stock must trade at less than $5 or $1 per share. Most of the time, these stocks have little to zero financial history. It may also be a company that’s near to bankruptcy.

If you want to trade penny stocks, it’s better to find some of them on the over-the-counter market, or OTC market. This is because large stock exchanges, such as the New York Stock Exchange and Nasdaq, have listing requirements for the companies that wish to trade on them.

For instance, companies that don’t have the minimum the $1 minimum bid price per share for primary equities are delisted. Consequently, penny stocks typically trade off of major market exchanges.

The OTC Markets Group has a mechanism that organizes securities into different tiered marketplaces. Each marketplace reflects the integrity of the operations, degree of investors, and the level of disclosure.

Account Creation

When you first open a trading account, you have to consider many factors. These factors include ease of transfers, customer service, and charges and fees. Different brokerages have different specializations. Therefore, you must allot sufficient time to find the right broker that will fulfill your trading needs.

If you want to invest in penny stocks, you might want to pay attention to the fees they charge per share. Many brokers require you to pay commissions per share. Initially, you have to pay a certain amount at a predetermined amount of shares. Then, you have to pay at a certain rate for each added share.

For you as a penny stock investor, it’s better to choose a broker that charges low flat rate per trade, regardless of the number of the shares you have. Lower flat rates mean less fees and commissions. That also means less impact on your final return.

The Risks

As mentioned above, trading penny stocks comes with risks. It’s important that you understand the risks that you may have to withstand before you trade them.

You may want to read more about the risks involved in trading penny stocks so that you may deal with them effectively as you go on with your trades.

Conclusion

It’s clear that penny stocks are another addition to your choices of investments. However, you must proceed with extreme caution. In order to successfully invest in them, you have to first understand the risks involved. Once you do that, you can find the right broker for you.

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