Stock trading: Top tips for trading penny stocks

Stock trading: top tips for trading penny stocks
In the United States, the SEC categorizes stocks that trade below $5 as penny stocks. More commonly, stocks that trade at low values outside the major stock exchanges are referred to (sometimes mockingly) as penny stocks. And though penny stocks can be found on the major stock exchanges such as NYSE or NASDAQ, the exchanges through which they are generally traded are the Pink Sheets, and OTCBB. These are the riskiest exchanges and investors are cautioned that many of the companies listed here are underfunded and badly require capital. Investors who wish to dabble in penny stocks should thoroughly understand the market and the minimum requirements for continued trading in the Pink Sheets. These companies can be suspended from trading if they fail to meet these minimum requirements.
There are five levels of stocks on the Pink Sheets and they are, in descending order of liquidity,OTCQX, Current Information, Limited Information, No Information, and Caveat Emptor. A stock can change categories very quickly and it is therefore necessary that you be thoroughly conversant with the penny stock market. It is also risky to trade stocks on the OTCBB because many companies who are unable to meet the more stringent requirements of the major exchanges choose to list here. Apart from the back of liquidity in many stocks, these companies are also known to indulge in financing practices that are detrimental to the interests of common stockholders.
Penny stocks available on the major exchanges are relatively stable but lack of liquidity could still be a problem. Many investors dabble in penny stocks in the belief that there are large sums of money to be made on relatively small investment. As with any other financial market, this get rich quick attitude can result in positions in stocks with unacceptably high risk. Don’t let greed get the better of you and only invest capital that you can afford to lose. To be sure, there are good and he stocks where money can be made but equally, there are lots of penny stocks on which you would lose your shirt. And don’t forget that a lot of people and Web sites are paid by the issuing companies to push their stock.
Scams abound in penny stocks and here is an SEC explanation of how some of these work “A company’s web site may feature a glowing press release about its financial health or some new product or innovation. Newsletters that purport to offer unbiased recommendations may suddenly tout the company as the latest “hot” stock. Messages in chat rooms and bulletin board postings may urge you to buy the stock quickly or to sell before the price goes down. Or you may even hear the company mentioned by a radio or TV analyst. Unwitting investors then purchase the stock in droves, creating high demand and pumping up the price. But when the fraudsters behind the scheme sell their shares at the peak and stop hyping the stock, the price plummets, and investors lose their money. Fraudsters frequently use this ploy with small, thinly traded companies because it’s easier to manipulate a stock when there’s little or no information available about the company.”
Another typical scam is for a fraudster to acquire a lot of penny stock cheap and attempt to offload them through dubious or illegal methods including spreading misleading information. Business week magazine once estimated that half the trading on the OTCBB were chop stocks. Recently, organized crime gangs pulled off a particularly nasty variation in which they gained access to customer accounts at media brokerages and offloaded their own holdings of dud penny stocks into these accounts. The customers were left holding the bag with these useless stocks.
If you wish to trade in penny stocks, do so by all means but:
-check out these stocks thoroughly and make sure you information is reliable
-don’t get carried away by greed or hype
-be prepared to lose all of your investment.

Most Penny stocks can brought at famous stock trading websites like Etrade. Etrade penny stocks could have some restriction like not being able to put stop loss or some penny stocks are restricted by etrade from directly buying unless you talk to the etrade associate. We often carry a article daily on best penny stock today or best penny stocks to watch.

Category: Penny Stocks