What Are Penny Stocks?

What Are Penny Stocks? Penny stocks investing (also known as small cap or micro cap investing) could be both engaging and fun. What causes these low-priced shares exciting is the possibility to only use a small amount in a company which has an innovative business plan, and harvest a huge reward.

In general, a penny stock is one that trades below a dollar, while you will find some folks who would say a penny stock can be priced as high as $5. I, like to take a position in penny stocks priced significantly lower - say under $.50. There are two stock exchanges you can find out these stocks trading. The 1st is the OTC : BB, or the Over The Counter Circular Board. The second is the Pink Sheets.

Stocks trading on the OTC : BB are asked by the Securities and Exchange Commission ( SEC ) to file checked finance quarterly reports with the commission with yearly reports. There are more filing needs too. The filing of these reports is compulsory thus penny stock investors may get authorized data open to them before making an investing decision.

Stocks trading on the Pink Sheets may or may not be required to file such reports according to how many financiers a specific company may have holding their shares. Companies on the ‘pinks’ with three hundred or more backers are demanded to submit filings to the SEC much like stocks trading on the OTC : BB.

The Pink Sheets are called as such because in the days before online trading became the favourite system of buying and selling, brokers trading in these shares would receive massive paper (pink paper) lists that were updated every week. This is the way in which the broker would reference a stock if a buyer was looking for data on a listed company.

The psychology concerned in the penny markets is that you can receive a great return with a tiny investment - and that psychology is powerful. There are a ton of great success stories related with the penny markets. MCI, Pet Smart, Jenny Craig, and 7-Eleven are all firms that started out trading as penny stocks. Yet, when it comes to making it massive, these companies are the exception rather than the rule.

Still, there’s a lot of actually great profit to be made with penny stocks investing. And here’s a secret about making profits with the dimes : virtually all stocks follow predicted patterns. It is up to the penny trader to be taught how to recognize these patterns and learn to take advantage of them.