Learning About Penny Share Investing And The Possible Rewards
If you are outside of the trading world then it is unlikely that you know fully what penny stocks are. If you speak to different brokers they may give you different answers and you will typically find that they do not cost only a penny, or even pennies to purchase. But they can be lucrative for traders who understand them and know what they are doing.
Rather than invest your money in penny stocks without fully comprehending what you are doing, it is important to understand what they are. In this article we will look at the basics so that you can decide whether it is worth your time looking into this unique type of trading.
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Defining Penny Shares
Penny shares are the well known title, for what’s more formally referred to as a micro cap equity. In its easiest terms, it’s a cheap stock, a share which trades at a lower value than blue chip, high cap items.
In the United States the SEC outline a micro cap equity as a share which trades at a unit value of less than $5.00. This is an official definition, but there are different, looser definitions, that are utilized by investors and penny stock brokers, depending on their place throughout the penny stock market.
If you are speaking to a broker or investor about penny shares, they could possibly be talking about shares where the value, per unit, is lower than a fraction of a cent. You might also be looking at stocks which can be traded on more obscure markets, with caps of $25-$50 million, or less, relying on the definition applied.
In fact, you don’t have to be in the US, to be talking about penny shares, as they have parallels, all around the globe, where cheap stocks and shares operate, in markets that support their trade. Top penny shares can go on to be huge name, blue chip shares, as a company grows and the markets they trade on can change, over time.
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Because the definitions used are rather versatile, in lots of circumstances you will often find that there are some contradictions to be discovered, in the way that these shares are defined. For instance, you may have shares that trade in obscure markets, with high unit costs. Similarly you might discover firms with high market caps, buying and selling at prices well beneath $5.00 per share.
What Markets Trade Penny Shares?
Penny shares could be traded on a wide variety of markets. Within the United States, this may mean anything from the NYSE and NASDAQ to the OTC-BB and Pink Sheets. Penny Shares are more likely to be discovered on the OTC-BB and Pink Sheets, as the larger exchanges are inclined to deal with higher market cap companies.
Small cap shares tend to be found where the regulations and charges for exchange itemizing are lower. The Pink Sheets have fewer restrictions than the OTC-BB, so you’ll find them in greatest numbers there. You’ll discover that some brokers prefer not to deal with the Pink Sheets, but you’ll discover plenty of OTC-BB Brokers, with a complete checklist of OTC shares available.
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This should be enough to get you started but be aware that trading these shares will take further reading and implementation if you intend to become an active trader. There can of course be a lot of risk involved and you should be following a proven system if you hope to make it work.
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