Penny Stocks – Know More about This Lucrative Trading Option
If you haven’t heard of penny stocks, maybe you should stop and read this. Penny stocks, as odd as it may seem, are responsible for the vast majority of stock trading in the US each day, accounting for over three-fifths of the NASDAQ stocks traded and over three-quarters of the stocks traded on the NYSE. But what are penny stocks, really?
Penny Stocks refer to the trades at a relatively low price and market capitalization, usually outside of the major market exchanges. The most popular definition is low-priced issues, often highly speculative, selling at less than $1 a share. In reality, some penny stocks have gone from 25 cents to $20.00, while others have become worthless. They have wonderful reward potential. Generally stocks are treated to be risky enough because of their lack of liquidity, large bid-spreads, small capitalization and limited following and disclosure. They will often trade over the counter through the OTCBB and pink sheets. There are those who define the best penny stocks in terms of their price per single share. The Securities and Exchanged Commission, or SEC, has established a minimum price for Stocks to trade on the larger exchanges; normally it is $4 or $5 per share. So the best penny stock definition, according to them, would be any stock which failed to meet the threshold $4 price to get it off the penny stock exchange.
Once a stock has been sent to the penny stock exchange, it will trade there until the company is able to re-qualify it for a larger exchange, and this may not happen even if it is trading above $4 or $5, because other conditions need to be met. So many traders look at where a stock is trading as the best penny stock determination.
The first thing you should consider is the price. The best way to determine good penny stocks is with their prices. The lower the price, the better your chance of making a profit just limit yourself to those penny stocks which will fit your budget, and limit your budget to money you can afford to lose.
Next, consider the short-term outlook for the industry in which the company whose penny stocks you want buy does business. Trading penny stocks is speculation, pure and simple, but it can be educated speculation. You’ll have to research your company, its competition, and the state of its industry as a whole.
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