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Penny Stocks Explained
Penny stocks are defined as stocks that can be bought or sold in the stock market for less than $5. Penny stocks are also referred to as microcap stocks and nano stocks, although there may be some subtle shades of differences among them. Because of their low value, penny stocks are traded in Over the Counter (OTC) markets, which however form part of the overall stock market.
If you want to buy penny stocks online, you are probably attracted to their price, as they are low priced compared with regular stocks and this impulsively drives many investors to buy them in large numbers. But trading in penny stocks - be it online or offline - is fraught with high risks, and more so for first time investors.
Prior to the advent of Internet, investors could only buy penny stocks through a broker. But the internet has changed all that. Buying penny stocks online is simple and all an investor has to do is to visit an online stock exchange that offers trading in penny stocks and sign up for an account. The investor will need a bank account with adequate certified funds. The investor can then begin buying penny stocks online.
Purchasing penny stocks through online discount stockbrokers can be a straightforward affair, if the following guidelines are followed:
- Search the Internet for online discount stockbrokers. Study websites of a few to know all particulars such as their commission, background, experience and reliability. After selecting the broker one finds most suitable to interact with, opening a trading account with the stockbroker is the next step.
- One has to obviously deposit money into the trading account with the online stockbroker by means of checks or wire transfers or inter/intra bank money transfers.
- It is possible to research information about various penny stocks online through newsletters, news sites and other such similar sources. However, beware of recommendations from unknown parties. Penny stocks are very susceptible to pump and dump schemes. This is particularly true when someone claims to have "inside" information, or when the recommendation touts a huge, but somehow still secret, breakthrough in technology or medicine.
- Then the process of the trading starts and the investor has to decide the penny stocks to buy. All one has to do thereafter is to get acquainted with the stock trading symbol and enter it in the stockbroker's online trading platform and purchase the stock of choice.
- It is necessary to vigilantly watch the stock price movements and sell the stock as soon as prices climb to acceptable levels. If the investor senses the prices may nosedive, it is prudent to sell off the stocks to curtail the likely losses. Stop and limit orders can be very helpful to help ensure proper timing of buys and sells.
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When To Buy Penny Stocks - An Overview
The secret to making money trading in buying penny stocks is that one should know the art of selecting the penny stocks that have the potential to suddenly spurt. As penny stocks are low-priced, the temptation to buy large number of shares is high. There is also the perception that an increase by a couple of pennies will mean an opportunity to amass large quantities of money. And if the stock decreases by a few pennies, it will only be a small manageable loss. Logically, both cannot be true at the same time.
All stock market investments are speculative in nature, and penny stocks are among the most speculative of all investments. If people say many investors have grown rich investing in penny stocks, the converse should also be true that many investors have ruined their finances investing in penny stocks. Beginners will be best advised to receive some initial training before venturing into penny stocks. There are many penny stock tutorials, guidelines and training programs one can access on the Internet. Overall, it is best to keep in mind the situation of the company that you are investing in. The more information you have, the better you will be able to predict the future of the company and the price of the stock.
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Wikimedia Commons - Penny Stocks