If you are outside of the trading world then it is unlikely that you know fully what penny stocks are. If you speak to different brokers they may give you different answers and you will typically find that they do not cost only a penny, or even pennies to purchase. But they can be lucrative for traders who understand them and know what they are doing.
Here’s a quick, easy burst of information, to help you start to get to grips with penny stocks. Hopefully this will give you some pointers for further exploration and research, rather than a definitive understanding.
Defining Penny Shares
Penny shares are the well known name, for what’s more formally known as a micro cap equity. In its simplest terms, it’s an inexpensive stock, a share which trades at a lower worth than blue chip, high cap items.
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In the United States the SEC define a micro cap equity as a share which trades at a unit value of less than $5.00. That is an official definition, however there are different, looser definitions, which are utilized by investors and penny stock brokers, depending on their place throughout the penny stock market.
In case you are speaking to a broker or investor about penny stocks, they may very well be speaking about shares where the value, per unit, is lower than a fraction of a cent. You might also be taking a look at stocks which are traded on more obscure markets, with caps of $25-$50 million, or less, relying on the definition applied.
Of course, you don’t have to be in the US, to be talking about penny shares, as they’ve parallels, all all over the world, where low-cost stocks and shares operate, in markets that help their trade. Top penny stocks can go on to be big name, blue chip shares, as a company grows and the markets they trade on can change, over time.
Because the definitions used are reasonably versatile, in lots of circumstances you’ll typically discover that there are some contradictions to be found, in the way that these shares are defined. For instance, you may have shares that trade in obscure markets, with high unit costs. Similarly it’s possible you’ll discover companies with high market caps, buying and selling at costs well under $5.00 per share.
What Markets Trade Penny Stocks?
Penny shares may be traded on all kinds of markets. In the United States, this will mean anything from the NYSE and NASDAQ to the OTC-BB and Pink Sheets. Penny Shares are more likely to be found on the OTC-BB and Pink Sheets, because the larger exchanges are likely to concentrate on higher market cap companies.
Small cap shares are usually found where the rules and fees for exchange listing are lower. The Pink Sheets have fewer restrictions than the OTC-BB, so you’ll discover them in greatest numbers there. You’ll discover that some brokers desire to not deal with the Pink Sheets, however you’ll discover loads of OTC-BB Brokers, with a complete record of OTC shares available.
This should be enough to get you started but be aware that trading these shares will take further reading and implementation if you intend to become an active trader. There can of course be a lot of risk involved and you should be following a proven system if you hope to make it work.
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