If you ask any investor about stocks which trade below $5, they are going to tell you about penny stocks, nano stocks or microcap stocks. For the most part, these three terms will be used interchangeably. But the broader meaning of a penny stock describes the aggregate value of a company's outstanding common shares, often called its market capitalization as opposed to its stock price. Nevertheless, there is no specified term which completely describes a penny stock
In order to determine the market capitalization for a company, you have to multiply the company's stock price by the amount for the outstanding shares. As a result of doing this calculation, it will be possible to figure out the overall dollar value of all the shares in a company at any given time. If you are buying penny stocks, you will be trading on the OTC or over-the-counter market, instead of the regular stock exchange. For most stock trading, a broker will trade on behalf of investors and arrange transactions directly amongst third parties and investors. For this service, the broker will then get a commission.
A large percentage of all penny trades will be charged by stockbrokers as principle dealings, meaning that the broker will not be paid a commission. As an alternative, the broker will make money on the spread, as well as from selling and buying at favorable times. Penny stocks are not sold and bought at one cost, but will have many different price levels. The main difference between ask and bid price will be referred to as spread. Most stocks usually have a spread of about 25 to 33%, but could often get to 50 to 100% or maybe more. These stocks are likewise subjected to mark-up prices. This is when a broker keeps the stock in their account and consequently takes a portion of the risk involved with the fluctuation in market price.
Despite the fact that penny stocks can be complicated and will be associated with many problems in addition to millions of dollars in loss, most companies still buy and sell them since they could help investors for instance, with a new business that is struggling. The best way to find really good investments will be to consult a broker because they are professionals who will know which penny stocks to watch. However when you are entering this market, you should be careful of brokers who're only trying to sell and might not be looking out for your best interests.
Author Resource:
Steve Kujala is a frequent article writer and operates numerous blogs and websites. If you want to learn more about penny stocks, see his blog An Overview Of Penny Stocks
![[Valid RSS feed]](http://www.look4articles.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites
![[Valid RSS feed]](http://www.look4articles.com/images/rss.jpg "XML Feed For RSS")