Penny Stock Classroom

• Penny Stocks

  You probably know someone who trades on the stock market and is able to make their living that way. A lot of stock traders are wealthy because they know how to identify the right companies to invest in. Learning to see good investment opportunities takes time and experience, but if you don’t have several thousand dollars to spend on purchasing and trading stock, how can you gain the needed experience? The answer could be penny stocks, an inexpensive form of stock that almost anyone can start trading today.

  Penny stocks, sometimes called “cent stocks,” are any stocks belonging to a publicly traded company that trade from a fraction of a penny to $5. They’ve been deemed the future of American investments since they represent the smaller American companies that are only beginning to take off and grow their business.

  The Upside to Penny Stocks

  Penny stocks are ideal for first-time investors. Unlike some other stocks, they don’t require a huge cash investment upfront. This allows you to purchase a good chunk of the company you want to invest in without spending all of your money. They’re also great for turning smaller investments into larger payouts.

  Penny stocks are known for starting out at $.25 and multiplying their worth to upwards of $20. It’s not unheard of for penny stock investors to become millionaires if they invest in the right companies.

  Another upside to penny stocks is that you’re not really risking a lot of money by investing in them. If you invest $10,000 in a company that fails, you’re out a lot of money. Because investing in penny stocks takes a lot less money, though, you can invest with confidence and know that even if the stock fails, you’re not going to be completely broke. It’s a safe, easy and potentially profitable way to get to know the stock market.

  The Downside to Penny Stocks

  As with any investment, there are a few downsides to penny stocks. Since the company you’re investing in is not as large, corporate transparency can become an issue. This is because larger companies usually have more standard methods of informing their stockholders what’s new with their stocks, while smaller companies usually have less experience with it. Penny stocks are also known to be a tad more volatile than regular stocks, which means a little bit more risk on the part of the investor. In rare cases, certain investors will buy up a large portion of the company and then hype the company up in order to get people to buy up the stocks under false pretenses. However, as long as you remain well-informed about where your money is going (as every good investor should), then you’ll have no problem playing the market.

  How to Know if Penny Stock Investing is Right for You

  You Should Get Involved in Penny Stocks If:

  • You want to make money.
  • You want to learn the ropes of trading stocks without investing too much of your money.
  • You want to increase the diversity within your portfolio.
  • You believe strongly in the idea you’re investing in.
  • You want to increase your portfolio’s risk/reward exposure.

  If these sound appealing to you, then penny stocks could be your ideal investment opportunity. But remember, you should do your research before investing your money in any kind of stock. Make sure that the company you are investing in has sound business practices and a good reputation. The more you know about where your money is going, the less likely you are to be taken to the bank!

  Over the Counter (OTC) Stocks

  OTC stocks, or Over-the-Counter stocks, are a rising trend in global banking, growing rapidly in the past two decades especially. OTC stocks differ from regularly traded stocks in that they are traded directly between two independent parties rather than through traditional stock exchanges such as the NYSE. The benefits of such a trade are less government penalties and taxes in the trading process as well as the customizability of each individual deal. However, since OTC stocks have less structure than other stocks, they require a good deal of transparency in order to be traded fairly. Both parties should have a healthy concern about the other party’s credit risks before entering into an OTC contract since the trades are not nearly as regulated as other stock exchanges. Experts suggest making the deal as small as possible and being financially prepared for non-payment when entering into this kind of deal.

  Over the Counter Bulletin Board (OTCBB)

  In order to find OTC stocks, the best place to look is the Over-The-Counter-Bulletin-Board (or OTCBB), and electronic bulletin board sponsored by the National Association of Securities Dealers that shows last-sale prices and real-time quotes for OTC stocks. The OTCBB is slightly less formal than the listings on the NASDAQ and have fewer rules concerning who can post there, so the stocks listed are a tad riskier. It’s also pretty rare for a smaller company trading private stocks to end up on the NASDAQ in the future. However, if you’re looking to invest in a smaller company with less red tape, the OTCBB is the perfect place to start.

  There are many options for investors looking to learn the ropes before investing their money. Penny stocks and OTC stocks can be a nice alternative to the intimidating world of Wall Street. You don’t need to have thousands of dollars sitting in your bank account to take advantage of the opportunity of trading penny stocks. Anyone with a few dollars to spare can start trading and potentially make a lot of money if they invest in the right companies at the right time.

  By beginning small, you can build your portfolio while at the same time avoiding large, hasty investments that could end up breaking the bank. It’s important to remember, though, that no investment should be completed until you know exactly what’s being done with your money. The more you know about what you’re doing with your money, the more likely you’ll be to get exactly what you want out of your
  stocks.