Penny stocks are defined by the Securities and Exchange Commission or SEC as speculative securities which are valued under $5 per share and are offered by small companies. In time this definition of these stocks has also stretched to include all speculative stocks which have share values near $5 and are not traded on the major stock markets. Those investors who do trading in stocks are aware of the fact that their daily dealings are resting on the edge of a sharp knife. This is because just one day’s profits can suddenly go floating away as a bad jobs report pops up or there is a rejection of a new product by the FDA the following morning.
These stocks have also earned a nickname”chop stocks.” This refers to the massive markup which is used by brokers in order to generate profit off of the speculative investments which they offer to their clients. The Internet has a wealth of information and advice about these stocks such as “sure-fire” investments and subscription services which offer daily tips. So investors who are new to stocks should do some research first and ask for advice from those who have traded before.
Investors who are interested in trading stocks should first take into consideration the state of their current portfolios and the recent history of any company which they are focusing on before making any investments. If your portfolio happens to be heavy on industries such as telecommunications or pharmaceuticals then it would be unwise to make an investment in dozens of shares in a penny stock. These stocks can be used by investors to diversify their portfolios while at the same time trying to make quick profit by hedging their bets in long-term stocks with investments which are speculative. Experts who know the market usually request that investors take a look at a 12-month pattern before they buy a stock the exception being stocks which are either startups that have no strong reputations or are companies which are established but have fallen on hard times. Considering these stocks the usual 12-month analysis should be replaced with a 30-day review before any investment decisions are made on it.
Investors need to remember that these stocks are sold outside of major exchanges therefore they have to look at “over-the-counter” listings in order to find these speculative opportunities. One popular resource for penny stock investors is the OTC Bulletin Board which offers quotes on a minute-by-minute basis and has a transparent set of listing rules for OTC stocks. Another good resource for stock picks is the Motley Fool’s CAPS website.
Penny stocks which are offered through OTC traders in the U.S. are regulated by the SEC. Companies must provide statements each month on the pricing of penny stock values to their investors if they want to offer penny stocks for sale through trading platforms. The SEC requests that investors submit an agreement to purchase stock from the company their interested in before each trade is completed. Even though the SEC oversees the trading process for penny stocks, it doesn’t guarantee the value and the regularity of the stocks in question. Penny stock investors should look for shares in such industries as green energy and information technology, the automotive industry, and the pharmaceutical industry.