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Don’t be fooled by the name "Penny Stocks." It is entirely possible to turn a few bucks into millions if you take the time to learn how this market works and learn which stocks to buy now. Keep in mind that penny stocks are those that trade for less than $5 per share and are not being traded on the NYSE or NASDAQ. In most cases, the companies who trade their stocks on the OTC market are relatively new and have yet to establish a proven track record of their success.

What Are Penny Stocks? 

To start with they are inexpensive, but they do have the potential for a significant return on your investment in a short period. This has made the penny stock market very popular in the last few years. While there is a high potential for significant profits, there is an equally high potential for significant loss. If you are thinking about investing in penny stocks, there is a lot more to it than just knowing which shares to buy now. You will want to put the effort in to research the best penny stocks to buy at this point in time. Without taking the time to learn what you are doing can be the fast track to financial ruin. 

Over-the-Counter Penny Stocks vs. NASDAQ/NYSE Stocks 

Put simply; a stock must maintain a value of over $1 in order to be listed on the NASDAQ or NYSE exchange. Companies who choose to sell their stocks on the OTC market may not be able to keep the value of their stocks over $1 or may not wish to disclose their financial activities.  In order for a stock to be listed on the NASDAQ or NYSE, the value of the stock must remain above $1, and the company must be willing to comply with all SEC financial requirements about transparency. 

The Four Types of Penny Stock 

In most instances stocks that trade for under $1 come from small companies who are trying to find their way in the marketplace. Those that trade between $1 and $10 are considered to be volatile, making them a risky investment. Common sectors traded in this manner often include Internet, Fintech, Biotech industries.  Bear in mind; a single overnight announcement can cause you to suffer a 50% drop in the value of your investment or a 100% increase. There are four basic types of penny stocks.

  • Type 1 – These are penny stocks that are openly traded on the NYSE or NASDAQ but are usually priced below $5. However, there are a few that trade for more. 
  • Type 2 – These penny stocks are typically priced from $0.01 to $0.99, but never go below $0.01. 
  • Type 3 – These are penny stocks that typically sell for under a penny, i.e., $0.0099 and lower. You won't find these stocks on the NASDAQ or NYSE. 
  • Type 4 – These are the "triple-zero" stocks, in other words, they are valued at $0.0001 to $0.0009 and responsible for many of the hot stocks alerts. But, keep in mind that a stock that moves from $0.0001 to $0.0002 represents a 100% increase in value. It can take ownership of millions of these stocks to turn any measurable profit. 

Harder Than it Looks 

If trading in penny stocks were easy, everyone would be investing in them and making millions. The trick is following the trends to see which stocks to buy and which ones to sell or avoid. The hardest part is determining which stocks these are before they are ready to make that big move. Trading in the OTC penny stocks market can be profitable, but at the same time, it also brings with it a significant risk of loss. The best way to avoid this risk is to spend as much time as you can learning about and following the market before you start investing.

A Beginner's Guide to the Penny Stock Market
Digital Mag

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