| Penny stocks, as the name suggests, are | | | | research. The number of shares that the |
| shares that are available at extremely cheap | | | | company has on 'float' is one indicator that |
| rates. Being available literally for pennies, | | | | needs to be ascertained. 'Float' is the |
| you can purchase such stocks for as low as $2 | | | | technical term for the number of shares of |
| per share. These stocks are usually of very | | | | the company being traded. Since penny stock |
| small companies, which have a market | | | | companies are unregulated, they are not bound |
| capitalization of less than $500 million. | | | | to report these details to the public. The |
| They are not traded at the major stock | | | | information, however, can be found in TV |
| exchanges like NASDAQ or NYSE, but are listed | | | | interviews, and the like, given by the |
| in the pink sheets or the OTCBB (Over The | | | | representatives of the company occasionally, |
| Counter Bulletin Board), because these stocks | | | | and are sometimes archived on their websites. |
| are of companies that are unable to meet | | | | There are forums on these websites where |
| their listing requirements. They are also | | | | stock brokers chat with each other. You can |
| referred to by other names such as pink sheet | | | | also get the information on the message |
| stocks, nano stocks, small caps, micro caps | | | | boards. Find and read the articles and |
| or juniors. | | | | reviews written about the company, which will |
| | | | give you a good idea of the float. For |
| Investing in penny stocks is considered very | | | | instance, if a company's float were very |
| risky as they are traded without any | | | | high, it implies that it is merely issuing |
| regulatory or listing requirements, which | | | | extra ones to keep afloat, hence would not be |
| provide security to shareholders. There are | | | | worth investing in. Companies that have five |
| no accounting standards, and the shareholder | | | | million to one hundred million shares are |
| gets no information about the change of | | | | considered fit for investment. |
| ownership of shares etc. This makes it a | | | | |
| potential source of fraud. | | | | The product of the company also needs to be |
| | | | scrutinized. For example, it is important to |
| However, with proper research, investment in | | | | find out if the company would face obstacles |
| penny stocks can be a tremendous earning | | | | in selling its products for various reasons, |
| potential. Not all companies listed with pink | | | | or whether patent issues would allow some |
| sheet stocks should be considered fraudulent. | | | | other company to introduce a similar product |
| Some of them represent good companies, which | | | | in the market, all of which would affect the |
| are too small to meet the requirements of the | | | | value of the stocks. Another important |
| NYSE or NASDAQ. Many such companies have a | | | | consideration would be whether the product is |
| bright future. Unlike blue chip stocks, penny | | | | going to find appeal with the target |
| stocks have greater volatility; hence, they | | | | consumers. |
| have the potential of sometimes reaping rich | | | | |
| dividends in a relatively short span of time. | | | | While investing in penny stocks may be more |
| Thus, investing in these startup companies at | | | | perilous than putting your money in bonds or |
| rock bottom prices can end up in making | | | | the shares of established companies, the |
| investors very wealthy. | | | | chances of striking it rich is also a strong |
| | | | possibility, which makes it a risk well worth |
| However, finding these companies requires | | | | taking. |