In the United States, a penny stock is the one that trades at a lower price than $5.00 per share. Trading with these shares involves a good deal of risks and is done on the basis of speculation mainly. These stocks are traded over the counter through the quotation services like Pink Sheets. They are traded outside the big bourses like NASDAQ or NYSE. The stocks that are traded inside the exchanges are mainly of the companies which are losing money or do not have great growth potential. The penny stocks are manly of newer companies that have developed a product and will gradually move to the major market. If you find the right ones to trade they can be very profitable.
However, the penny stocks have certain regulations about them. If these are not followed a red flag will go up. Firstly, your penny stock in order to be sold by a broker should have a written approval from you. The broker should also provide you with a detailed document that tells you about the risk associated with such trading.
The assessment of the risks includes the price for each share that the company will receive from the trading. A percentage of it will be committed to the broker involved. Once your account is in place, the company will give an estimate of the value of each share on a monthly basis. If everything runs in track then you will have lucrative deal.
The penny stocks bring a huge return for little investment. As a result it is a pet stock with seasoned traders. It also draws those who are quite a novice to the stock market. But remember that all stocks will not bring you good returns. There are lots of scams that exit in this arena. Lots of such stocks are fraudulent which are just placed there to gull the new traders. They are made to buy a wad of such stocks and given to believe that they have done a square deal.
There is a public opinion that it is difficult to select the right stocks. Well, this is not so. Even if you are a greenhorn, you can do it well by taking some careful steps. To begin with, visit a penny stock site. There you will come across dozens of resources that will give you a clue as to which stock to pick.
However, most of these sites are paid sites. Some of them need a registration at the minimum. Incase a contribution is to be made to get the information, it is very minimal. Moreover it is worth the dollars you shell out as it will help you take an informed decision about buying penny stocks. However, besides gathering information from the Internet, you should also consult an expert, who is veteran at the stock market. The information that will be present in the websites may not be true always. Sometime a website could be a fake one, so you should take sufficient care before banking on one of those. However if you follow these simple steps carefully, you are here to get a profitable return.
Author Resource:
StockReads Fan is the author of this article on Hot Penny Stocks .
Find more information about Penny Stocks here.
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