What Is a Penny Stock?

Monday, 01 Nov 2010 04:35 PM

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The term “penny stock” is encountered by investors at some time or another. Penny stocks or microcap equities are attractive to investors because they may provide quick and significant gains. They are also easier to acquire with less initial investment.

In the U.S., according to the Securities and Exchange Commission (SEC), a penny stock or microcap equity is one that trades for less than $5.00. However, the public, retail investors, and other stakeholders define penny stocks rather loosely, as a stock that trades at a relatively low price. The market capitalization of a penny stock is relatively low. It is seldom traded on the major stock exchanges. It often trades over the counter through the OTCBB and pink sheets. A penny stock is highly speculative and riskier because it lacks liquidity, the bid-ask spread is large, and disclosure is inadequate.
 
Penny Stock Finder
A penny stock finder is a tool that helps you pick profitable penny stocks and trade them comfortably. Several newsletters, which are penned by experts on penny stocks after thorough research, circulate on penny stocks and serve as a good penny stock finder. With the help of this information, you can easily invest in penny stocks. But it is advisable to additionally rely upon personal judgment before investing. 
 
Specially developed software programs are another tool used as a penny stock finder. These advanced programs automatically conduct all the research that is needed, including the interpretation of charts. The program gives you a list of penny stocks in which you can invest in profitably. Seldom does the program fail. Penny stock finders of this kind are faster than newsletters in generating results. You can search for these programs on the Internet where you are sure to find an online penny stock finder that suits your requirements.
 
Best Penny Stocks
The best penny stocks are those which have the potential to generate a higher and more attractive return for you in the long run. Such penny stocks are also called top penny stocks or hot penny stocks.
 
Penny stock picks are sent free by some websites as an email to their members. These websites provide free stock picks on all different stock exchanges. All you have to do is add the domain to your white list so that these stock picks go straight to your inbox, and not to the “spam” folder. Generally, these websites provide the best penny stock picks each week. Penny stock information can also be obtained over the phone. For example, some websites send penny stock picks in the form of SMS text alerts, provided you sign up for the service. You can expect to receive at least one piece of penny stock info each week.
 
Stock Market Trading
Penny stocks are also traded the way you trade other stocks, namely through the stock market. Penny stock trading is part of the overall stock market trading activity. The trading can be done online too, but you have to open an online account with a broker.You can buy and sell penny stocks on the stock exchange the same way you buy and sell other stocks.

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