What Are Penny Stocks?
posted in Bricks and Mortar Business |If you have never invested in penny stocks, then the first thing you will need to do is find out exactly what are penny stocks and how can they cause you to make lots of money, or lose lots of money. If you have the money to spare to make riskier investments, then investing in penny stocks can be a great way to do so. But before doing anything you will have to figure out what these types of stocks are and how they are different from more traditional stocks. It would be very unwise to jump into this kind of situation without having done some research first.
But what are penny stocks going to do to help people make a lot of money? Their very name implies a small investment amount. But investing in penny stocks means something different depending on where you live and where you put your money. For example, in the UK, a penny stock means that it is a stock or share in a small cap company. The actual share price is usually less than one pound, but as long as the company itself has less than 100 million pounds in market capitalization the share price doesn’t matter.
In the US, however, there are different answers to that question of what a penny stock actually is. One definition considers all penny stocks to be those that are traded outside of the major exchanges, like NASDAQ or AMEX. The SEC has a slightly different definition, where a penny stock is defined solely by the share price, as long as it is fewer than five dollars. The market capitalization of the company does not matter, nor does where you trade the stock. This means that you can trade your penny stocks on NASDAQ or through a listing service that is not a secure exchange.
Knowing what are penny stocks will help you do research into this part of the stock market and understand more about why these stocks tend to be so volatile. It really all comes down to size, with smaller shares and smaller companies, and the specific definitions will really depend on where you are from and which definition best fits your situation. The definition itself is not so important, but what is important is that you understand the consequences of the size being smaller and how things change as a result. This will help you to be successful when investing in this particular market.
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