Most consider penny stock trading to be the exchange of stocks at a price between $1 and $5 per share. You’ll also see penny stocks labeled as micro cap stocks, microcap stocks, nano stocks or even just small cap stocks.
Penny stock trading occurs within the OTCBB (Over-the-Counter Bulletin Board) or on the Pink Sheets. So you’ll also find these stocks labeled as OTC stocks (OTC stands for over-the-counter). Penny stocks tend to represent smaller companies, newer companies or struggling companies. They either haven’t proven themselves enough to list on NASDAQ or the grand New York Stock Exchange (NYSE) or in some cases they’ve been penalized by those exchanges and removed.
There is a common misnomer regarding penny stock trading.
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Before you even think about starting to buy penny stocks online, you need to understand what penny stocks are and you need to understand the potential risks involved in trading these off-exchange stocks. Buying penny stocks online can be a lucrative business if you know what you are doing and you understand this specific market, but it isn’t necessarily an easy way to make money fast.
There is a learning curve and a skill to buying and selling penny stocks to increase your income. Among the things you will want to learn is how to calculate the market cap of a penny stock. Learning how to compute the market cap of a stock can help you determine the dollar shares of all of the shares within the company at a given point in time.
Penny stocks are listed on the OTC market, not on the securities market like many other stocks. Besides learning how to find and monitor penny stocks you’ll need to look for a broker to help you facilitate trades if you want to start buying penny stocks. There are a few different types of online brokers from full service to discount and everything in between. When researching online stock brokers you’ll want to evaluate a few different brokers considering their fee structure, services provided and minimum account balances.
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