What Are Penny Stocks?

I know the name might makes you think otherwise, because I myself got confused with this name once I started trading penny stocks. Some countries call them the cent stocks, but in the US they are called penny stocks.

Although they are referred to as penny stocks it is very rare to actually find a company that’s selling its share for a penny. I usually don’t put my money in them if I stumble upon some because once they reach that low it is very difficult to go back up.

Generally, penny stocks trading is not done like all the big companies, such as Apple, Walmart, and Bank of America, just to name a few. Those stocks are being handled by the Wall-street while penny stocks are not.

Any stock that’s trading below a dollar per share is categorized as penny stock. They fail to meet some specific criteria which cause them not to be listed on the national exchange.

For this reason they are prone to the pump and dump scheme. I will explain in details what is this scheme in a later post. Since they are not listed in the national exchange, they are very volatile and prone to manipulations.

In the United States those type of stocks are traded over the counter (OTC), also known as the pink sheet. Penny stocks are very risky, but at the same time very profitable. That’s exactly how investing works if you would ask me. any investment that’s not risky tend to be less profitable. The higher the risk the higher the profit.

But investing in penny stocks requires a different approach because of their volatility. You will never be too sure of the outcome of a penny stock no matter how much research you done. But knowing as much as you can about a company before investing in is always the best and increases your chance.

Penny stocks promoters and manipulators usually affect the ones that are trading for a fraction of cent. What they do is they buy as many shares as they can afford and then start sending false news about those stocks to inflate their price. Once people start buying and the price increases they dump their shares and leave. That’s what they called pump and dump.

For this reason, penny stocks traders AKA day traders have to ensure that they done their homework before putting their money into those stocks. First off, it is crucial to follow them for some days or weeks; secondly research their history to see their trends; and thirdly confirm that they are not scams.

If you are reading this article it ‘s because you want to learn about how penny stocks trading works. Let me be the first to tell you that you are doing a smart job by reaching out for help before you start. Many people just jump in and start trading without knowing anything which cost them a lot in return.

Although they are risky, affected by scams and manipulators, many investors believe investing in penny stocks worth it all. As for me, if they did not worth it I would not be here writing about them.