![]() ![]() They ensure that a company will operate in a manner that is in keeping with its legal or regulatory obligations. These minimum standards provide a safety net for investors. Once a company cannot maintain itself on exchanges like the NYSE, it can move into smaller OTC listing exchanges where there are no minimum standards for listing. Stocks represented on the OTCBB and pink sheets do not need to comply with any minimum standard requirements to remain represented on the OTC exchange. These penny stocks will have to provide information relating to their financial health and comply with a wide range of regulations. As a result, these stocks will not receive the same levels of public scrutiny or regulations as stocks represented on major exchanges.įor this reason, investors may consider investing in penny stocks that are represented on the NASDAQ/NYSE or other international exchanges like the LSE/ASX. This means that they will not be required to file with the SEC. This is because many penny stocks will trade-off “pink sheets”. When it comes to penny stocks, this information can prove very difficult to find.Įven when the information is found, it often does not come from a credible source. ![]() They are also afforded a wealth of technical data on which they may make decisions and enjoy using numerous online resources to assist their decision-making. With publicly traded companies, investors can go online and download every financial statement they care to analyze. Gauging your risk exposure with penny stocks is also a difficult task. They may be competing in industries with well-entrenched and highly reputable competitors, and their management teams may be inexperienced or ineffective. They will generally be cash poor and suffer from a lack of resources. Since most, if not all, penny stocks are relatively small companies, many of them will struggle with the problems of any fledgling enterprise. Let’s examine some of the reasons why penny stocks can prove themselves to be a high-risk investment. NOTE: You can get the best free charts and broker for these strategies here. We will explore the risks associated with penny stocks more thoroughly in the section below. Since penny stocks do not typically trade on traditional stock markets, they can suffer from low levels of liquidity, and investors might struggle to find a selling price that accurately reflects the market.ĭue to their low liquidity and the small nature of the companies they represent, penny stocks are generally considered highly speculative assets, and investors risk losing significant portions of their principal investment. Genworth Financial (GNW) is an excellent example they currently trade for $3.90 a share but have a market capitalization of over $2 billion. Several stocks trade for below $5 but have a significant market capitalization. To qualify as a penny stock, the company also needs a small market capitalization (less than $300 million). It should be noted that a company trading at a share price below $5 does not automatically make them a penny stock. Whilst some penny stocks can be found on major exchanges like the NYSE, most trade over the counter through the OTC Bulletin Board (OTCBB). A penny stock is defined by the Securities and Exchange Commission (SEC) in the United States as the stock of any small company that trades at less than $5 per share. Historically, penny stocks were considered to be any stock that traded for less than 1$ per share.Ĭontrary to what the name might suggest, a penny stock is no longer simply a stock that trades for less than $1. #4: Choose Your Broker and Trading Charts.#3: Choose How Much You are Going to Risk.#2: Chooser Your Trading or Investing Strategy.NOTE: You can get your free penny stock trading PDF below. We will discuss what penny stocks are, the risks and costs associated with trading them, and various trading strategies that can be used to profit from these stocks. This post is going to examine a particularly curious type of stock known as a penny stock. There are large-cap stocks, also known as “blue-chip stocks”, mid-cap stocks that have a market capitalization of between $1-8 billion, and small-cap stocks, which, as their name implies, have the smallest market value of the three. Stocks are placed into different categories depending on a set of predetermined criteria. ![]() Whilst all public companies trade their stocks on the public markets, not all stocks are created equal. Some companies, known as public companies, allow their stocks to be bought and sold by anyone and everyone on the public markets known as stock markets.īoth individuals and corporations buy stocks as an investment in the hope that the value of the stock will increase over time and yield a healthy return on that investment. ![]() A stock, also known as an equity, represents the partial ownership of a company. ![]()
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