How to Invest in Penny Stocks: An Introduction

If you’ve always wanted to get involved with trading, but you’ve never had the huge amounts of cash required to invest in large shares of big-name companies, then you might have begun to consider the benefits of penny stocks. Over the years, penny stocks have gained a somewhat complicated reputation thanks to their connection with unregulated forums and scams. However, the truth is that if you know how to trade these, they’re no more dangerous than any of the other options on the market. 

In fact, it’s worth remembering that many of the biggest companies in the world, including Slack and Ford started off at a penny-stock price. Many big organizations need to trade at low levels until they can develop a name for themselves in their preferred marketplace. The question is, if you’re willing to take the risk involved with trading penny stocks, how do you get started?

Understanding the Basics

A penny stock is any under the price of $5 a share that’s trading on the over-the-counter markets, or the standard marketplaces like NASDAQ. Due to the small share prices associated with penny stocks, it’s possible to buy very large amounts of a company, without necessarily spending a lot of money. While having a large chunk of a company is very appealing, it’s worth remembering that penny stocks can easily be manipulated. On the other hand, bigger brands like Microsoft would require an investor to have billions of dollars to shift the price. 

Another thing to keep in mind is that many penny stocks are regularly traded on unregulated markets like the OTC bulletin board or the pink sheets. Although these environments are very cheap, they’re also quite dangerous because there’s nothing to stop the companies listing on these markets to lie about the information they’re giving. If you are investing in penny stocks, it’s a good idea to avoid these unregulated markets. 

When Investing

When the time comes to invest in penny stocks, the best thing you can do is make sure that you’re informed. The securities and exchange commission has released a variety of warnings to investors who are concerned about their penny stock options. You can look up a company’s name online to find out if any warnings have been issued about them, before you make an investment. 

It’s also worth spending some time looking into the brand’s “level of disclosure”. OTC markets typically rate companies with a selection of icons that indicate how much data they’re willing to give to investors. The more information you can gather about a business, the easier it will be to make an informed decision about your investment

Always do your due diligence when you’re investing in penny stocks. No matter how tempted you might be to take advantage of a great price, remember that it’s crucial to at least see whether the company has released any important information recently that might guide your decisions. If financial information is available, analyze it carefully and take all of the details you can find online into account.