Penny stocks are Low-priced, small-cap stocks are known as penny stocks. Contrary to their name, penny stocks rarely cost a any amount of money. The SEC considers a penny stock to be pretty much hardly any money under $5. And while there are sub $5 stock options trading on big exchanges like NYSE and NASDAQ, most investors don't think of these when asked to outline a penny stock

1. how to trade penny stocks
Methods Are Penny Stocks?
Low-priced, small-cap stocks are known as penny stocks. Contrary to their name, penny stocks
rarely cost a any amount of money. The SEC considers a penny stock to be pretty much anything
under $5. And while there are sub $5 stocks and shares trading on big exchanges like NYSE and
NASDAQ, the most investors don't think of these when asked to summarize a penny stock.
Most individual investors look at penny securities like Wall Street's Wild West, an untamed world
including investing detached from all the glitz and media rrnsurance policy coverage that comes
with stocks that are traded on big exchanges. While the gains and losses can be pretty
impressive in the penny stock world, they're not quite often heard about elsewhere.
Just because you don't hear about a red cent stocks every day on CNBC doesn't mean that coin
stocks are without drama -- take SCO Group, one particular software company that brought on
the wrath of each world's computer-literati when it made claims to the UNIX operating system.
Unfortunately, penny stocks have also garnered each reputation as a game filled with scams and
file corruption error. Indeed, penny stocks could be your wildest ride yet as an angel investor.
So then, if penny stocks usually aren't traded on normal exchanges, where can you buy them?
How to Buy Penny Stocks
Like any other stock you would buy, you can decide to purchase shares of a penny stock through
your normal stockbroker -- regardless of whether or not it's listed entirely on a major exchange.
While cheap stocks listed on exchanges the same as NYSE and NASDAQ aren't typically
considered "penny stocks" an se, they can afford a lot of the elements of penny stocks without
quite so much risk. Those exchanges have strict listing requirements, and while they perhaps not
allow for as much of an upside in view that "true" penny stocks can, they tend to be whole lot
reliable. More often, though, penny stocks trade on liste services like OTCBB and Pink Sheets.
Over-the-Counter Bulletin Board, to OTCBB, is a quotation. Unlike Pink Sheets, which should be
a quotation publisher, OTCBB maintains listing requirements (though they're less stringent than
those of an exchange). For this is what reason, OTCBB has a little bit of added authenticity.
Pink Sheets is a system that provides investors with quotation information through stocks that are
registered with it. Unlike OTCBB, however, Pink Sheets isn't registered with the SEC and a
fortune enforce any listing requirements. Bottom Line: Pink Sheets futures are risky.
The Potential Payoff of Penny Stocks

2. With all our own risk involved, why would anyone want to put or even her her money in a penny
stock anyway? The manage is volatility.
Because penny stocks are prone to violent fluctuation (volatility), many people believe that they'll
luck out which has a stock that will jump from $0.08 to $8 in two weeks. And it's happened. Scour
enough installing message boards and you're sure to find success news from investors who made
a mint while "playing all the pennies."
Companies that can successfully make the jump from small cap stock to power stock are rare, but
when you may find them they pay out in spades. Numbers will differ quite a bit in the penny stock
world, yet investors have raked in gains over 1,000% in any kind of couple weeks' time. The real
trick is finding usually the right stock.
The Risks of Investing in Penny Stocks
Even appropriate penny stocks are plagued by very high risk. More than one principal reasons
that risk is so inherent in small cap stock investing are low liquidity and poor reporting standards.
As investors saw most recently with the sub-prime lending market, liquidity setbacks can be a
huge deal for investors. And rather than lending, low liquidity plagues the penny stocks on one
daily basis. Because penny stock investing is such an niche area, even relatively low trade
volumes can have in effect an impressive effect on a stock's share price. Relating to the
Securities and Exchange Commission (SEC), "Penny the traditional stock market may trade
infrequently, which means that it may are difficult to sell penny stock shares once you get them.
Because it may be difficult to find insurance quotes for certain penny stocks, they may be
impossible to accurately price."
What this means is that if you engage with penny stocks you may end up with a single whole lot
of worthless stock that you can't produce rid of.
Another concern for investors is the lack of all stringent reporting standards for companies whose
stocks trade from OTCBB or in the Pink Sheets. OTCBB does have that registered companies
stay current with SEC filings, but those filings are the bare minimum -- well which follow what an
exchange-traded company would have to file.
Since small businesses that are delinquent in submitting their filings to ones SEC are still so
accessible to individual investors, pound stocks have proven to be a treasure trove concerning
dishonest people.
That's one of the reasons that the Second has taken such an active role in making sure that the
American public is protected from unscrupulous establishments and individuals in the penny stock
arena. For you are broker to even sell you a penny stock, they are simply legally required to send
you a document outlining that this risks of penny stock ownership. There's a reason brokerages

3. and regulatory bodies go to such lengths to help sure that you're not blindly investing in penny
stocks; scammers are out there.
What's With the Penny Stock Fake?
Spam is the scourge of the earth. It fills our new e-mail inboxes with garbage and junk, and
chances get if you get a decent amount of spam, products seen messages designed to promote
penny stocks.
But the fake isn't relegated to e-mail. Message boards, chat rooms, session groups -- even
advertisers on legitimate websites -- become all home to their fair share of the tricks. It goes
without saying that you shouldn't go away from and buy a stock that's praised in a questionable e-
mail, but some people do, and scammers make a large group of dollars off of unsuspecting
investors.
One of the almost prevalent types of penny stock scams out there is the "pump and dump." In a
pump and place scam, the bad guys load up on a competitive and worthless stock, convince
inexperienced investors to buy the at inflated prices (pump), and sell their shares out of when the
investors push the price up enough (dump). For help on avoiding pump and dump scams, try out
the SEC's article on the matter.
How to Bit Those Pennies
So now that you know the scary end of penny stocks, how can you cash in in relation to the
potential growth that they have to offer? Here are three things you'll want to look for when picking
a penny stock to make sure that that you don't get penny stuck: Underlying business, financials,
and footnotes.
When it comes to penny stocks, a company's underlying company is even more important than it
is in exchange-traded stocks. That's because the penny stock world is at home to "shell"
companies that are legally incorporated, but no need to have any business operations. Shell
companies are a remarkable opportunity for scammers, because they can be easily put up as a
"pump and dump" stock. Look relating to companies with real, sustainable business operations
and you'll are one step closer to finding a good penny sell.
Like with any stock, a penny stock's financials are a superb essential tool for investors. But with
penny stocks, specific question is more about the quality of the unforeseen statements. Does the
company file on time? Who would be the auditing firm? Do the company's financials look healthy?
If you can answer yes to those three questions, it's time to stroll through the footnotes.
In most companies, footnotes are an oft-overlooked, yet very important part of most its filings. And
while you might be able if you want to get by without reading GE's footnotes, miss the footnotes
for a penny stock, and your portfolio might can miss its mark. Since penny stocks are smaller
companies which are more prone to things like related-party transactions and consequently non-

4. GAAP accounting oddities, don't walk around the footnotes over a penny stock.
Conclusion
Fact: Penny stocks are inherently risky. Fact: Penny stocks can be fodder for scammers. Fact:
Nickel stocks can make you a lot of money.
Even now with all the risks and drawbacks involved in penny stocks, many investors simply find
that the potential windfalls are perhaps well worth it. There's a reason that penny options remain
popular among a brave clique of investors: Tidy sum stocks can deliver a very impressive return.
Hopefully, you happen to be find that your new penny stock know-how makes that Wild West of
investing a little more tamable.
Jonas Elmerraji is the editor and portfolio manager of the Rhinocerous Stock Report, a free
investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets,
including Forbes and Investopedia, and has been featured in Investor's Business Daily, in
Consumer's Digest and via MSNBC.com.
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