According to the SEC, penny stocks are any stocks which are valued at a share price of $5 or less and which are traded thinly. These stocks are sometimes referred to as slot machines, because they are much riskier than normal stocks. Usually, it’s extremely difficult to choose penny stocks that will be a good investment. Some that appear to be doing good will often fail instantly due to many different factors.
On the other hand, there are a few that rise and rise and make people lots of money as they jump into the big league. If you’re interested in making money with these types of investments, you should really do your homework on the company you’re investing in, just like you should with any other stock. You should also be very conservative and try not to invest more than you can afford to lose if things go south. Penny stocks should not be your main investment module, and she really be viewed as a place to put extra cash after investing most of your money in normal stocks. It’s like going to the store and buying all your important groceries, then maybe spending a few dollars on scratch off or lottery tickets.
Most professionals who know a lot about the penny stock market advise new investors to really research and study the stock they are interested in. Sometimes penny stocks represent shares in a brand new company that has no verifiable history. But other times they are stocks of companies that were once superstars on the stock market and who have failed due to various factors. This isn’t to say that companies like that can’t make comebacks, but it’s extremely rare. You should always try to dig as deep as you can into a company’s past to find out exactly why they are a penny stock, and try to turn up any skeletons that might be hiding in their closet.
Since these micro-stocks are usually traded outside the larger stock exchanges, you should always check up on the other exchanges and forums to see if you can find any good deals. But while there’s a lot of websites and talk groups that discuss hot penny stocks, some of them are just out to scam people with pump and dump schemes. This occurs when people try to manipulate a stock’s price by spreading lots of fake news about it and getting lots of people to invest in the stock in a quick amount of time (usually in 1 or 2 days). They then sell all their shares once it reaches an artificial high, and this causes the stock to collapse and lots of investors lose their money in the process. So if you read any sites giving you advice on a particular penny stock, take it with a grain of salt.