In the United States you know them widely as “Penny Stocks,” In the United Kingdom, they are “Penny shares” while others say “Cent Stocks”.
Its name is not engraved in stone, nor is the principle by which they are defined. Some business experts even compare this exchange with risky gambling.
Wrapped in controversy, are the Penny stocks dangerous?
Should we deal in the Penny Stocks exchange?
Let’s explore all the ins and outs of Penny Stock in this article.
What is a Penny Stock?
The penny stocks as the name suggests, are shares cents, which cost less than $ 1. This is the exact definition of penny stocks, however, in recent years this niche market has evolved considerably and today the regulator of financial markets in the US.
Here is the definition of Securities Exchange Commission (SEC) on Penny Stocks:
A Penny Stock is a bond exchanged at less than $ 5 per share/stock, outside the major market/domestic exchanges.
Types of Penny Stocks
There are three types of penny stocks; they are classified according to their risk, the controls on them and the OTC market in which they are listed:
OTC Pink: They are the actions of the lowest quality and the most speculative, coming from companies in bankruptcy or with serious liquidity and financing difficulties, or from companies that do not yet have products in the market.
As they are companies that do not meet the necessary requirements to contribute, they have no obligation to publish information and are not audited.
OTCQB: These actions are at the medium level of risk. Unlike OTC Pink, the companies from which these actions come do have an obligation to present documents and accounts publicly.
Even so, they are still very small companies or in the initial phase of development and it is difficult for investors to predict whether these will end up being viable projects.
OTCQX: The companies of which these actions are part, within the risk that they carry, comply with many of the financial standards, are required to present documents and accounts and are usually audited, so they offer greater security for investors.
Sometimes they are companies “sponsored” by other companies or large investors who are committed to their future.
However, the probability of success when investing in one of these companies, while still low, is much higher than choosing the two options above.
How to select your Penny Stock Broker?
When looking for a penny stock broker, one aspect to which special attention should be paid is to the structure of its commissions. Some brokers charge commissions per share.
This structure is generally set at a particular rate for the first specified number of shares, and then another rate for each additional share.
This structure is more suitable for traders who are purchasing a relatively fewer number of shares and may not be the best composition for penny stock investors.
It may be more useful to look for a broker that offers a relatively low fixed rate per transaction, independently of the number of shares traded.
The lower the flat rate, the less impact the fees and commissions will have on the final return.
How to trade penny stocks online
To start investing money to buy and sell penny stocks, you need to:
- Open an account trading.
- Do research to find the appropriate shares.
- Go ahead and negotiate.
- Manage your risks.
- Determine the size of your position and place the trade.
- Watch your arrangement and close your business.
If you are serious enough about this game, you will soon discover that penny stocks online trading forums include some success stories every so often.
All the difficulty of the game is finding that action that can offer you 1000% winnings in a matter of weeks.
Penny stock is not a suggested action for anyone, but for those investors who are educated in the field who assume and know the factors involved in investing in stocks of low liquidity and low market capitalization.
If you still want to invest in Penny stock, professionals propose that the speculation does not exceed 5% of your total assets for financial investments and, above all, constantly consider a restricted stop-loss policy.
Before you go out to exchange, we leave you with some tips:
- No forum, software, or web page can give you a complete and accurate picture of the game.
- If you want unbiased advice, don’t pay attention to the company’s management advice. Ask someone with experience in brokerage, who can probably tell if an action is being overvalued.
- With larger shares, you will find the fastest-growing in certain industries. It may be oil, marijuana, biotechnology, energy, software, technology, or pharmaceutical. Penny stocks do not work the same way and can be volatile.
- The cheapest action is definitely not the best. What’s more, how cheap it is should alert you to how insecure it can be to be able to negotiate it.
- No, trading penny stocks will not make it the next Warren Buffet. To achieve that type of status, you will need a coherent investment strategy, with long-term vision and goals.