Obtaining reliable investment information on the penny stock market is extremely difficult because of the scarcity of dependable corporate data in the treacherous world of the OTC and pink sheets. By the time a professional stockbroker were able to pass along important news about a penny stock, it would probably be too late to capitalize on it. Generally speaking, if the broker is strongly promoting a specific penny stock issue, he stands to benefit financially under the table, one way or another. The responsibilities of a stock broker do not mesh with the qualities of a good financial advisor. The broker is compensated for the amount of dollar volume he generates via stock sales. He is interested in generating high commission sales, not providing quality financial planning advice. He is naturally going to be interested in generating the quick buck via high commission sales, not working towards establishing a long term client relationship. On top of that, you end up paying triple the charges for receiving poor investment advice.

Stay clear of these charlatans and hook up with a reputable online penny stock broker. Generally speaking, you will not be communicating with anyone from the brokerage, unless there is an administrative question regarding an order. You will not be pestered by any salesmen looking to make a quick buck, leaving you free to perform independent investment analysis and place orders at your own discretion. You will be able to focus on the data that actually causes stock movements, such as the real time price of the issues and the commonly used pertinent mathematical ratios.

If discussing your finances with a professional is important to your peace of mind, then seek out a financial planner who charges a fixed fee for his services, and who does not have a vested interest in the actual stock transactions. The wave of the future for penny stock investing is strictly through the internet.

I believe most people know what stocks are. A stock’s price multiplied by the amount of outstanding shares represents the value of the company. A company’s worth can be characterized by total assets minus all its obligations. Stocks may be more or less profitable, according to the company’s efficiency and ability to return to profit for every dollar that was invested in it.

Publicly traded companies are traded on three major exchanges like the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ) or American Stock Exchange (AMEX). Even though quite few penny stocks are traded on these exchanges, most of them are traded on the OTC:BB (over the counter bulletin board, also known as the pink sheets.

Potential to make incredible amounts of money in a relatively short period of time, indeed, is one of the most attractive factors that attract investors to penny stocks. Because decreased listings, any change in prices can lead to one hundred times the initial investment. Some people can become rich overnight if they make the right choices.

Moreover, there is also the possibility of losing money. Penny stocks can also go down 50% or more in just one day of trading. Which is why you need to do even more research onto the company before making any investment. Unlike the big stock exchanges, stocks traded on the OTC:BB don’t require to do the same types of quarterly reports as the others. Another issue to be aware of is the fact that most penny stocks don’t have any analysts following the company to really get an idea of what they are up to. Of course you can call the company’s public relation department to get some answers, but then again you have to remember that the person you’re talking to works for the company and may exaggerate the company’s performance. As the old saying goes… Let the buyer beware.

Let’s start with the concept of someone giving you free advice on which stock to buy and when to buy it. What’s in it for them? That’s the first question that comes to mind when I think of these websites. If they send you free e-mails and don’t ask you for any money on return, then how do they make their money? To get one thing straight… getting a tip on a stock is not the way to play the stock market. You need to do your own research on the stock that you are looking to purchase. Don’t be what I refer to as being a penny stock chaser.

These websites are more designed to get others to buy into stocks that they’ve already set up a position in and are waiting for the “new” investors to jump on the band-wagon and cause the price to go up. When that happens, they will scale out of their position and leave those who are not as quick to get out before the price drops back to where it was.

In my research of these websites, I signed up for their e-mails and track how the stock moved. In many of these cases ( over 85%), I would never own or invest into any of these stocks. Their balance sheet and the financial reports of these companies did not look good. As a matter of fact, one company in particular WDAS.PK, was being hyped by three different websites. What did the stock do from the e-mails? What happened was unbelievable. The first alert was on Sunday Oct. 11th. Telling their subscribers to buy at $0.05, but when the stock opened on Monday it was at $.40. Updated alerts went on stating that the climb wasn’t over and to buy at $0.40 – $1.20 per share. I will say that those who timed it well, made a ton of money if they sold their shares around $1.85 – $2.00. It hit a high of $2.00 before closing at $1.85. In just two trading days it closed at $0.48.

During the entire 10 trading days from when they first talked about WDAS.PK, the stock went up and back down again to where the ride started at. As of this past Friday, Nov. 20th, it closed at $.20 per share. Was it good to “play” this stock tip? Only if you were able to watch the day to day activity of the stock, was it worth it. The stock came down a lot quicker than it went up. I’m sure many didn’t get out in time and suffer a loss.

My advice to you is to do your own research and not to take anyone’s advice at face value. Just because someone or some website says it good, doesn’t make it so. I know it may be harder to do research on companies that trade on the pink sheets because usually these companies don’t have analyst watching them. Some information is out there, but you have to watch for fluff articles that publicist put out to help boast interest in the company.

There’s a common perception that they are very risky, and there is some truth to this. The risk is not caused by the low price of the penny stocks. Many foreign exchanges typically price even their blue-chips in share prices which are less than a dollar. And because penny shares are not marginable in North American brokerage accounts – which means your broker won’t lend money against their value – they are actually less risky than stocks that trade for higher prices, as the most you can lose with pennies is your initial investment.

But there are some ways in which penny stocks are riskier than stocks that trade for higher prices if you’re not good at understanding the stock market. They tend to be smaller companies, and thus their management is not typically comparable in quality to that larger companies where the remuneration paid to executives can be much higher. Their smaller capitalizations make them more subject to insider manipulation. And they tend to be involved in riskier enterprises such as mining exploration.

In addition to the added risk, there are some other difficulties in trading penny stocks which you should consider. Institutional investors – such as mutual funds and pension funds – avoid them because they are too illiquid to buy in large quantities. This creates a problem for the retail investor as well. If you accumulate a large position in a penny stock you may find it very difficult to reduce your position. There simply may not be enough buyers who wish to buy your stock on any given day. In fact, some penny stocks are so illiquid that they do not trade every day. This illiquidity leads to another problem in trading them: the large bid-ask spreads. The bid-ask spread is the difference between the bid price and the asking price of a share.

In penny stocks it can sometimes be very large, with the difference representing a large percentage of the share’s value. With penny stocks it’s important not to put in market orders unless you’re confident that the spread is small, and that there is sufficient volume trading to fill your order. Otherwise, make it a practice only to use limit orders, and be patient. Volatility is another problem with penny stocks. For this reason you should generally avoid using stop-losses, particularly with very thinly traded issues, as you can easily be stopped out of a position simply by routine trading swings.

Penny stocks are risky, but they can also be rewarding. Returns of 100 percent, 500 percent, or even 1000 percent or more do happen. And since you can only lose a maximum of 100 percent on any single trade, you don’t need to pick a winner every time in order to make a significant return on your investment. Just be sure to limit the portion of your portfolio invested in penny stocks, and then pick a basket of them, rather than putting all of your money into a single name or two. Trading penny stocks can increase your investment returns, provided you trade them with caution, and are fully aware