Buying Penny Stocks
“What is a penny stock?” This is a question that is asked every day. The answer depends on who you ask.
Typically a penny stock is a stock that is valued at less than $5.00, but others say that it’s less than $1.00. Buying penny stocks can be a profitable venture or a losing proposition.
Penny stocks are stocks of a new company that is trying to raise capitol for one reason or another. Since they are new and small, the information on these stocks are limited and may have restricted liquidity. Also a financial report could be hard to find on that particular company. The risks involved in trading them can vary. The stocks are not as active compared to others in the market which makes it hard to predict.
A penny stock can move up or down by 50% or better in a single day. This does make trading penny stocks quite attractive. To reduce your risks, you need to do research on each company that your looking to invest in. Do not trust someone else’ research, many brokers will inflate numbers to look more attractive than they really are and in doing so you can lose everything that you invested
Many people who are buying penny stocks are usually considered day traders. They’ll buy a stock one day and wait for the gains that they are looking for and sell the next day. They also tell everyone that they know that this is a great stock just so you will invest in the company causing the price to go up to where they will get out with their profits and leave you high and dry. Anyone that tells you that they have some great insider information on a company and that you should get in on the action, is someone that you shouldn’t be listening to in the first place. It’s illegal for anyone who has information that has not been revealed on a company to pass that info to someone else.
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