Getting Started

Penny Stocks: Small Investments For Patient People

7 Apr , 2016  

Penny stocks are not for everyone. For the risk averse and investors seeking high and quick returns, penny stocks are not likely to deliver. However, they can be a valuable commodity and many a broker or investor will likely be able to identify what penny stocks are likely to grow over time, and which stocks will not return on investment. What are penny stocks? A stock trading under $5 is or share trading under $1 can be defined as a penny stock or share. These are sometimes referred to as Nano stocks as well. These stocks define the company’s market capitalization, which will vary from overall stock prices.

Micro-market

The companies that offer penny stocks are often small scale successes in their own right. Microsoft and Google need not apply. Valuable companies happen over time and do not appear overnight. Companies at this stage are offering penny stocks. While some investors may believe that sifting through penny stocks offers a way to “hit it big” in the stock market, this is unfortunately not a proven strategy to success. Penny stock investors must be consistent and invest for lengthy periods of time. This strategy will prove to be unsuccessful in most cases.

Value and Bidding

The spread value of these types of stocks round out to about 25 to 33%. They can sometimes even fall between 50 to 100%. Bidders are allowed to place inside and outside bids on penny stocks. The outside bid and ask are generally of greater value to the bidder. There are no single rate prices at which penny stocks are bought and sold, but rather, a number of different prices exist. Navigating the prices and spreads of these stocks should be done with an experienced broker as prices can sometimes be misleading.

Brokers make their money on the spread, in addition to taking advantage of buy and sell times. The difference between the bid and ask price is known as the spread. Penny stocks are known for markups in pricing due to broker’s accounting for the risk associated with the stock and price fluctuation. This can make for a complicated process when deciding on what penny stock is safe for investment. The best way to get into these stocks is through an experienced broker that is knowledgeable of the potential benefit of investing in a specific penny stock or stocks.

The risks associated with penny stocks are largely due to the lack of information that is known about this micro-market. These stocks are not traded on the stocks exchange but traded in an (OTC) market. This shouldn’t stop interested parties in exploring this very small but valuable market overall.

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