Penny Stocks and Why you Might be Interested in Them?

We don’t all have access to spare money to start investing and trading in successful companies, trying to make our fortunes. For those of us who would like to get involved in stocks without the big initial outlay, Penny stocks can provide a solution. 

It isn’t surprising that Penny stocks are low value stocks, typically traded for pennies per share. But don’t be deceived by name. In the past Penny Stocks needed to be under $1, however, now Penny Stocks can be anything up to $5. Which generally makes them more affordable, if traded well!

1. Know the Market

Penny stocks are not traded on the major markets such as the New York Stock Exchange. Instead they are traded on the Over the Counter (OTC) markets. They can also be listed on publications like the Pink Sheets which don’t require much financial information to be given, making investment more of a gamble. It is important to understand how they work and get to know the market before using any of your hard-earned cash to buy up some stocks. 

2. Number of Outstanding Shares

People often look at the share price and overlook some of the other fundamental information before diving in. The number of outstanding shares can be a very good indicator of how well the company is doing. If the company regularly issues more shares in order to raise money for the business then any shares you have will decrease in value. 

3. Read the Stock Charts

Getting to know the charts and understanding how to read them will stand you in good stead for spotting a winner on the penny stocks. Combining fundamental analysis (details about the company such as management, lawsuits, revenues) with technical analysis (trading patterns) gives you the best chance of finding and investing in the next big thing. 

4. Use a Penny Stocks Scanner

Technology is designed to help us to do things easier and quicker. This is exactly the purpose of penny stocks scanners. Some scanners do not include OTC market and Pink Sheet Stocks so if you choose to go down this route, make sure you fully read what you will be getting out of any market scans. For many traders, scanners are found to be the best way of predicting what has a high probability of making money.

5. Don’t Be Fooled

Image via Flickr by StockPenny

Penny stocks are bought and sold for relatively small amounts of money and it can be easy to get caught up in thinking it’s a simple way to get involved in the stock market. However, the lower prices don’t actually reflect a simpler market and it is vital to do large amounts of research before parting with any cash. The penny stock market has much less liquidity than the major markets and so when you’ve bought stocks it can be difficult to get rid of them.