This guide to penny stocks for dummies hopes to encourage a greater understanding of the concept of penny stocks, including their advantages and disadvantages and where they can be traded. If you are interested in stock trading and are considering investing in penny stocks this guide will serve as the ideal primer to educate you on the basics and essentials you need to know.
To begin this guide to penny stocks for dummies it is first crucial to understand what penny stocks are. Whilst there is no set definition of penny stocks, they are widely regarded in the world of stock trading to be stocks that trade for under $5 and often for pennies. Penny stocks are also referred to as a micro cap equity. Often penny stocks are traded over the counter and the bulk of these stocks are traded on two lesser known markets, namely the OTCBB and the Pink Sheets.
Penny stocks are extremely alluring for those who are new to stock trading, and for those who hope to make a quick profit, this guide to penny stocks for dummies hopes to elucidate the temptations of penny stocks and the potential downfalls. The lure of penny stocks is down to two simple reasons. The initial investment required to trade penny stocks does not need to be vast because these are stocks being traded for under $5. So, only a relatively little amount of money is actually required to own a reasonable number of stocks and this is understandably tempting to anybody. The second reason penny stocks are so desirable to new traders is their incredible volatility. This volatility means stocks can move dramatically in price in a short space of time and this sets up the opportunities to make vast profits quickly.
Understandably the potential to make lots of profits in a short space of time with only a small investment is attractive to anybody, however this guide to penny stocks for dummies aims to highlight the potential pitfalls in these investments. The first point to make regarding stock trading with penny stocks concerns the volatility already mentioned. This volatility also presents the opportunity for vast losses in a short space of time and this is something investors need to be wary of. Penny stocks also have a reputation to be very risky and highly speculative and this makes it hard for an investor to know what to confidently invest in.
Finally the most important aspect of this guide to penny stocks for dummies is the consideration of the markets penny stocks trade on. There is a reason these stocks mostly trade on the OTCBB and Pink Sheets and that is because companies trading on these markets are not required to be transparent and they do not have to pass the strict regulations required of companies trading on major markets such as NASDAQ. Information on the companies is often limited and thus they are less secure. However if a trader is confident in their investment they could make plenty of profits on penny stocks.