How Penny Stock Trading Works

Some of the most exciting stock opportunities will never show up on the ticker running along the bottom of your favorite financial news network. Unheralded penny stocks can be incredibly lucrative for the right traders even if they don’t carry familiar three-letter acronyms with them.

As their name suggests, penny stocks are inexpensive offerings. Most accepted definitions consider stocks trading at under five dollars to be penny stocks. They are usually issued by small companies and are considered a highly speculative venture.

Penny stocks don’t trade on the major stock exchanges. Instead, they are bought and sold over-the-counter via locations like the “Pink Sheets” and the “OTC Bulletin Board.” In some cases, one can find penny stocks on foreign security exchanges, as well. In some cases, penny stocks are issued by companies that really aren’t actively traded in any market.

Penny stocks have a reputation for danger. The SEC, for instance, requires that those brokering penny stock deals must provide a separate disclaimer to the investor describing the high risk involved in the process. Although that kind of regulation may frighten some people away from this market segment, there is a great deal of money to be made by those with a good eye for nascent businesses with a successful future ahead of them.

The penny stock world shares the same principles of any investment market. Buy low, sell high. In order to make these speculative investments work, one needs to be able to isolate businesses that have a legitimate chance of substantial growth. The low per share cost of these stocks makes the market accessible and when one “wins” with a penny stock, they often “win big.”

If you are prepared to develop the right spotting techniques and are willing to research new and small companies to find tomorrow’s “blue chips” today, penny stock trading might be a perfect investment opportunity. The risks may be higher than those associated with traditional investment, but the potential rewards of uncovering the “next big thing” are nothing short of amazing.

You may not have been aware of the opportunities inherent in penny stock trading. Now that you are, you can dig deeper into this fascinating form of speculative investment!