A penny traces fluctuations in penny stock

What Are Penny Stocks?

Low-evaluated, small-cap stocks are known as penny stocks. In spite of their name, penny stocks rarely cost a penny. The SEC considers a penny stock to be anything under $5. Keeping in mind there are sub $5 stocks exchanging on huge trades like NYSE and NASDAQ, most financial specialists don't connect these with penny stocks.

Most individual investors see penny stocks as Wall Street's Wild West, an untamed universe of investing that is unconnected with the fabulousness and media scope accompanying stocks exchanged on real trades. While the increases and shortfalls might be noteworthy in the penny stock world, they're not frequently noticed elsewhere.

But just because you don’t hear about penny stocks consistently on CNBC doesn't mean penny stocks aren’t noteworthy. Sadly, penny stocks have garnered notoriety for being a trap loaded with tricks and corruption. In reality, penny stocks could be your most thrilling ride as a speculator.

So then, if penny stocks generally aren't exchanged on ordinary trades, where can you purchase them?

Where Can You Buy Penny Stocks?

Like most available stocks, you can buy shares of a penny stock through an ordinary stockbroker.

While modest stocks recorded on trades like NYSE and NASDAQ aren't ordinarily considered "penny stock,” they can manage the cost of a considerable measure of penny stock profit without as much risk. These trades have strict posting prerequisites and are more dependable. But penny stocks are most often exchanged on services like OTCBB and Pink Sheets.

Over-the-Counter Bulletin Board, or OTCBB, is a quotation. Unlike Pink Sheets, which is simply a quotation distributer, OTCBB keeps up posting necessities (however they're less stringent than those of a trade). Consequently, OTCBB has a smidgen of added authenticity.

Pink Sheets is a system that furnishes speculators with quotation data on stocks that are enrolled with it. Unlike OTCBB, Pink Sheets isn't affiliated with the SEC and doesn't implement any posting regulation. Main concern: Pink Sheets stocks can be risky.

The Potential Payoff of Penny Stocks

With all the risk, why would anybody wish to put his or her cash in a penny stock?

Since penny stocks are prone to rough fluctuation (instability), many individuals want to believe that they'll have some luck with a stock that will hop from $0.08 to $8 in two weeks, which can actually happen. Scour enough internet forums and you're certain to discover examples of investors who made real money while "playing the pennies."

It is uncommon for organizations to effectively make the leap from penny stock to power stock, however, when you discover them, they pay out quite well. Numbers shift quite a bit in the penny stock world, yet investors have brought in additions in excess of 1,000% within several weeks. The real trick to penny stock success is simply discovering the right stock.

Last Updated: April 23, 2015