Inside the World of Penny Stocks
Investing in penny stocks can be both a challenging and lucrative avenue if you are an investor. Knowing what your doing is essential for success, so before we start talking about how to make money with penny stocks, lets first talk about the basics:
What is a Penny Stock?
A penny stock is a stock that trades for less than $5 per share. Most Penny Stock companies have only been in operation for a few years and typically carry less than a few million dollars in assets. Penny stocks are not listed on the three major stock exchanges- AMEX, NYSE or NASDAQ- but are rather quoted on an over-the-counter service such as the OTC Bulletin Board or Pink Sheets.
Many penny stock investors make their money via day trading. Day trading is a strategy that involves buying and selling stock within the same trading session. Investors will open and close a stock position on the same day making their profit on intraday price fluctuations.
A typical trade would work like this:
A trader finds a stock that looks attractive and is selling at $.90. He or she decides to buy 100 blocks (1 block= 100 shares of stock) and pays $9,000 in addition to trading fees. Now say two hours later, the price for that same stock has climbed to $.915. The investor would send a sell signal, and with luck, hopefully find a buyer at that price. If the investor manages to attract a buyer, they would close out their position and pocket the profit.
Of course, real life is not always as simplistic as the example above and there are a lot of variables that can affect the price of a penny stock. However through maintaining a high level of research and dedication, as well as having a little bit of luck, it is very possible to become a successful penny stock trader.
