Penny stocks are outlined as any stock that's trading under the cost of $5.00 per share and that's traded either on pink sheets or on the Nasdaq . Brokers outline them as any stock that trades below $5 per share and regulatory agencies typically define them as any stock with a price below $2. Never the less, when penny share investing, a stockholder can make, and then lose money extremely quickly considering how easily a change by even .05 cents can relate to the overall price of a stock. This factor is what makes selecting a high quality penny stock with a high potential for ROI crucial.
Tips and General Info Referring to Penny securities investing one ) you have to build your own private list of 10-20 penny stocks with those stocks that you think have the most potential.
However much people think they can get rich with penny stocks, they should also be aware that these small stocks are also very high risk. And you could lose all your money quite fast. The potential to make a lot of money fast, comes with the risk of losing money fast. It's the nature of this market.
Pump and Dump
Small stocks like these, that have very low liquidity, and have wild price fluctuations are targets for lots of fraud. Some scammers will look specifically for vulnerable companies, real companies, that are struggling and need a cash infusion. They offer money for equity, and have in place clauses to be able to free up that stock quite fast. Some of these financiers set predatory type items in the contracts that allow them to buy stock below market price in exchange for funding. They then go out and hire stock promoters to create liquidity and enable them to dump their stock. The company is left holding the bag with angry shareholders. Check out more from the Security Exchange Commission on Micro Cap Fraud http://www.sec.gov/investor/pubs/microcapstock.htm.
Hot Penny Stocks
At the same time, early investors of small companies like these need an exit strategy for when their restricted stock frees up. This is why it is risky to invest in start up companies, you may never get your money back. But at the same time, you could make a fortune. Speculation is the name of the game.
When dealing with micro cap and penny stocks, you will notice that there are lots of free newsletters around ready to send you stock picks. These are normally the stock promoters and they keep a very high subscription list. They are constantly trying to build this list. Why? Because they get paid by companies to send out advertisements about specific stocks. If they do their job well, getting awareness to a certain stock, then that stock will hopefully go up with increased volume. Now the thing with these free stock newsletters is, they have to be selective with which companies they advertise, because enough bad stock recommendations and they will lose all their subscribers. But they are good to see who is promoting what on any given day. And smart and experienced traders can make great money day trading and swing trading these picks. Guess what though, you get what you pay for.
On the other hand, there are premium stock newsletters around. Some are better than others, and some focus on specific niches. Typically the owners of these services go out of their way more so then the free stock picking services, as they do not rely solely on advertising income to stay in business. They have a paid membership. and the quality is much higher. Again, you get what you pay for.