Penny Stock Trading
Penny stocks are classified as sub $5 stocks that are normally issued by small start-up companies or holding companies. While some bigger name companies like Citigroup have been known to slip in the sub-5 territory due to their market cap it is hard to classify Citigroup as a penny stock. Characteristics of a penny stock include:
- Stocks that trade under a dollar.
- Not traded on NASDAQ or Amex
- Any over the counter (OTC or OTCBB) stock
Where to find information on Penny Stocks
The over the counter bulletin board market (OTCBB) is one place to research penny stocks. If you take a look on the OTCBB web site you research companies that are on the otcbb – shows market statisitcs, recent news, and any recent financial filings the company has made. OTCmarkets.com covers otc stocks and they are broken up into tiers based on reporting. Each sites has company information in the subheadings such as share volume, dollar value, and total transactions. Analyzing this data should help you to identify and react to market trends.
When you are looking at penny stocks to purchase for trading purposes it is important to pay attention to the total dollar value to get a real feel for the overall pulse of the market. Share volume is important but while a sub penny stock may trade millions of shares, it doesn’t necessarily mean a lot of dollar value. Dollar value gives you a clearer view of how much cash is entering the market. As a trader you are interested in seeing more investors enter the market which translates into stock movement. The purpose of trading stocks is to move them, trading is not the same as investing, which is a long term commitment.
If you are looking to trade stocks listed on the OTCBB or the Pink Sheets you should know a few things. First, you should know that these stocks are not required to report to the Securities and Exchange Commission (SEC). Any company that trades on any of the major stock exchanges such as NASDAQ, NYSE, AME, or any others must file a report with the SEC. Also any company that has net assets over 10 million dollars must file a report with the SEC. This means many smaller companies do not have to file, some choose to do so voluntarily but there is no requirement. Finding out information about these companies such as info about their products, services, as well as management and finances is up to you as the investor/trader, however information may not always be easy to find or reliable. Companies that trade on the Pink Sheets and OTCBB also do not need to have a minimum number of shareholders or a minimum amount of net assets.
What Types of Companies Trade on The Pink Sheets and OTCBB?
The companies that use Pink Sheets and OTCBB vary greatly. Some are start-ups but others are well known established companies, many of which are going through a bankruptcy reorganization period. Some foreign companies also trade on Pink Sheet and OTC, currently such companies include: Japanese camera and printer maker Ricoh; the French automobile manufacturer, Peugeot; and Japanese gaming company Nintendo. There are over four thousand stocks quoted by Pink Sheets.
Penny stocks are a good way to learn more about the market and possible make a little money along the way. Always have a clear idea about how much you are willing to invest before you begin trading.
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