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penny stocks | Mysite

A penny stocks refer to a small company’s stock typically trades for less than $5 per share. Although some penny stocks trade on large exchange such as the NYSE, most penny stocks trade via otc or over the counter though the OTC bulletin board (OTCBB)

 

In the past, penny stocks were considered any stocks that traded for less than one dollar per share. The U.S, Securities and Exchange Commission or SEC has modified the definition to include all shares trading below five dollar. The SEC is an independent Federal government agency responsible for protecting investor, maintaining fair and orderly functioning of the securities markets.

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Penny stocks are usually associated with small companies and trade infrequently meaning they have a lack of liquidity. As a result, investors may find it difficult to sell a stock since there may not be any buyer in the market at that time. Because of the low liquidity, investors might have difficulty finding a price that accurate reflects the market

Due to lack of liquidity, wide bid-ask spreads or price quotes, and small company sizes, penny stocks are considered highly speculative. In other words, investors could lose a sizable amount or all of their investment.

 

Currently there are nearly 1800 stocks trading at $1 or less on the OTCBB. According to the OTCBB, a penny stock is anything that trades for $5 dollar or less. Going by that definition, there are nearly 2400 penny stocks available on the OTCBB. If penny stocks are not cup of tea, both AMEX and the NASDAQ small cap MARKET are home to a cornucopia of microcap stocks. Lets take more in depth look at the various place where you can find microcap stocks.

 

Pink sheet stocks

 Pink sheet stocks are commonly considered to be the most primitive of stocks in the evolutionary chain of equity securities development. The term “pink sheet” is a nostalgic terms referring to days of old when information about these stocks was printed on, yes you guessed it, pink paper.

The pink sheets got their start back in 1904 when the National Quotation Bureau (NBQ) began publishing daily and weekly list of small securities that were traded over-the-counter. The pink lists published by the NBQ contained the names of securities accompanied by contact information for the market makers that dealt with stocks. In order to trade a security, investors had to solicit quotes from three different market makers.

"Seems like a lot of work to make a simple trade!"

Pink sheet are companies that fit many profile. Some pink sheet companies are startup with many potential for unlimited growth. Others are large, well established foreign corporation such as Apple, Rolls Royce and BMW (which as today is yet on Pink sheet), many more you may be familiar with

Compared to stocks from the larger exchanges, pink sheet stocks have many advantages to offer. First of all, pink sheet stocks are typically cheap. In fact, some pinkies are downright ridiculously cheap! Would you believe it if I told you that some pinkies cost as little as $0.0001? It’s true! For investor with limited funds. Pink sheet stocks afford the opportunity to accumulate a vast treasure-trove of shares. A second advantage of pink sheet companies is that they are often young startups with potential for enormous future growth. Will you find the next Microsoft in its infancy? Probably not, but there is a chance that may discover a solid company that eventually moves to a larger exchange or is acquired by another company at a premium price. A third advantage of pink sheet stocks is that they have the potential to appreciate very quickly. Its not uncommon for a pink sheet stock to raise thousands of percentage points in a matter of weeks

Price fluctuation of penny stocks

Penny stocks are often growing companies with limited cash and resources. It is more suitable for investors with high tolerance for risk. Typically, penny stocks have a higher level of volatility, resulting in a higher potential reward and a higher level of risk. Considering the heightened risk level associated with investing in penny stocks, investors should take particularly precautions. For example, an investor should have a stop loss order predetermined before entering a trade and know what price level to exit if the market moves opposite of the intended direction.

 

American stock exchange (AMEX)

In terms of trading volume, the American stock exchange (AMEX) is the third largest exchange in the United Estates, handing approximately 10% of securities traded in the country.

The AMEX got its start in the early twenty century as an alternative to the much larger New York stock exchange. The action at the curb become so enormous that in 1921, the “curb exchange” moved indoors to a more respectable place of trade. At one time the AMEX was the main rival to the NYSE. However, the recent emergence of the NASDAQ has somewhat diminish its role as an exchange powerhouse. Because of its more lenient listing requirement, the AMEX is heavily populated with microcap and small cap securities. If you are looking for safe and secure place to invest in microcaps, the AMEX Is a good start. As you will soon see, the AMEX is a good start. The AMEX is often the first stop for stocks that graduate from OTCBB.

 

 

How Is a Penny Stock Created?

A penny stock, like any other publicly traded stock, is created through a process called an initial public offering or IPO. First, a company must file a registration statement with the Securities and Exchange Commission or file stating the offering qualifies for an exemption from registration. It must also check state securities laws in the locations it plans to sell the stock. Once approved, the company may begin the process of soliciting orders from investors. Finally, the company can apply to have the stock listed on an exchange, or it can trade on the over-the-counter market, or OTC.

 

Small companies and start-ups typically issue stock as a means of raising capital to grow the business. Though the process is lengthy, issuing stock is often one of the most effective ways for a start-up company to obtain the necessary capital.

 

 

After initial orders are collected and the stock is sold to investors, a registered offering can begin trading in the secondary market via listing on an exchange like the NYSE, Nasdaq, AMEX or trade over-the-counter. Many penny stocks wind up trading via OTC due to the strict requirements for listing on the larger exchanges. Sometimes companies make an additional secondary market offering after the IPO, which dilutes the existing shares but gives the company access to more investors and increased capital. Furthermore, it is mandatory that the companies continue to publicly provide updated financial statements to keep investors informed and maintain the ability for quoting on the over-the-counter bulletin board, or OTCBB.

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iworthsaving.com is for entertainment & educational purposes only. Material shared on this blog does not constitute financial advice nor is it offered as such.

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