Advertisement
Advertisement

Penny stocks shares of stocks that can be purchased for no more than five dollars. Usually, these stock options belong to small or developing companies that may or may not grow into financially successful businesses, hence the low cost and the risk investors must take when investing in penny stocks. It is entirely possible to invest a small amount of money in penny stocks and garner a large return. However, this a gamble that depends on the unpredictability of the stock, the timeliness of the company, and corporate business practices.

Advertisement

Before Buying Penny Stocks

If you are thinking about buying penny stocks but are hesitant to take the plunge without professional advice, penny stock experts are readily available to guide you through the process. They can also tell you where to buy penny stocks, explain the various terms used when discussing the stock market, and advise you of any noticeable trends emerging from recent market activity. Penny stock experts provide advice on how much to spend on a penny stock share, the average daily volume reflecting its liquidity, and the stability of the stocks you want to purchase.

1017271506

Eduardo Munoz Alvarez / Getty Images

Advertisement

Researching Penny Stock Brokerage Firms

Be aware of differences among penny stock brokerage firms before deciding which one is suitable for your needs. Pricing arrangements vary among penny stock brokers depending on whether you want to buy one stock or a block of penny stocks. The facilitation of your purchasing or trading is another difference between penny stock brokers. Some are faster than others, some may have simpler sign-up procedures, and some do not require a minimum deposit. Others offer discounts and various incentives that may be of benefit to your goals.

1607340

Getty Images / Getty Images

Advertisement

Importance of Selecting the Right Penny Stock Broker

Understand that the level of your prosperity while participating in the stock market is going to depend on selecting a broker that can accomplish what you want to accomplish. They can help you decide how much stock to buy and when to trade. Developing a clear line of communication with your penny stockbroker and their firm will impact your success as a penny stock owner and trader. Good penny stock brokers shouldn't add additional fees when trading high volumes of low-cost or penny stocks.

961111254

Drew Angerer / Getty Images

Advertisement

Take a Hard Look at a Company's Liquidity

Penny stocks either trade several hundred shares per day or trade hundreds of thousands of share. To determine a company's liquidity, multiply the number of shares by their price to get a good idea of the money flowing through the company daily. Penny stocks found on major exchanges usually present higher liquidity than those on lesser exchanges. The lower a company's liquidity, the more volatile they could be. It's harder to invest $2000 or $3000 in smaller companies without see the prices rise. In addition, prices could plummet when the time comes to sell, since there aren't many immediate buyers.

953886326

Spencer Platt / Getty Images

Advertisement

Be On the Lookout for Scams

Investing in penny stocks can be risky of you aren't dealing with a broker or know what you are doing. Penny stock scammers love to take advantage of people who invest too much money into fake shell companies that appear to be making them lots of money. A shell corporation is primarily used by companies or individuals as a way to avoid paying taxes or obtaining different types of financing. To remain legal internationally, companies based in America will establish shell companies in foreign countries where they carry out offshore work. Dealing with a reputable penny stock brokerage firm is the best way to avoid scammers.

918521002

natasaadzic / Getty Images

Advertisement

Don't Be Fooled By Unsolicited "Hot Tips"

Once you start researching penny stocks, you may receive unsolicited emails telling you about a "hot" penny stock in which you should invest. These are almost always scam emails promoting companies with no earnings, no volume, no potential, and high debt. Take a few minutes to research such emails, and you'll find most of them are bogus.

155351397

D-Keine / Getty Images

Advertisement

Penny Stocks -- Good Investment or Not?

Yes, they can be as long as you do your research. Choose a brokerage firm you can trust, and realize you probably won't get instantly wealthy with this kind of investment. As an investor in any type of stock, learn how to identify signs of scam stock before investing; watch for companies using paid promotions, businesses refusing to disclose financial information, or those listing stock on non-major exchanges.

640174292

jokerpro / Getty Images


Disclaimer

This site offers information designed for educational purposes only. The information on this Website is not intended to be comprehensive, nor does it constitute advice or our recommendation in any way. We attempt to ensure that the content is current and accurate but we do not guarantee its currency and accuracy. You should carry out your own research and/or seek your own advice before acting or relying on any of the information on this Website.