From the stock investing point of view, a common definition of penny stock is that which is traded for a very low sum. The term penny stock however should not be taken literally, as penny stocks are not traded for pennies. The denominations of the investment is always quite small. Thus, to make a substantial investment, you will have to purchase a few hundred shares. The logic that needs to be applied is a bit different from normal stocks.
About Penny Stocks
The Securities and Exchange commission of United States defines a penny stock to be a share that is priced at, or below, $5. Earlier, it was $1, but due to the small trade values, the definition was changed. There are two important terminologies regarding the price of this stock. A face value is the value at which the penny stocks were issued in the first place, which is usually in pennies. The second concept is market value. After the IPO (Initial Public Offer), the shares/stocks enter the stock market, and their prices either escalate or decrease as per the performance that is shown by the company. Market advice or tips and opinions are basically analysis by experts who forecast the market price escalation, which is backed by a logic, which is again based upon certain market situations. Penny stocks are sometimes also known as micro cap stocks, as they possess just $10 - $100 million of market capitalization, at a time.
Normally, stocks can be bought at conventional stock exchanges. Stock exchanges are basically share, stock and instrument malls, where you can quickly buy and sell shares or stocks of different companies. Penny stocks are, however, not listed on the conventional market. It must be noted that there are some penny stocks that are traded on NYSE, NASDAQ, and Amex, yet, the proportion is too small, and liquidating an investment becomes very difficult. Other two options are, OTC-BB (Over-the-Counter Bulletin Board) and Pink Sheets, which are the two markets that deal solely in penny stocks.
Leads to Buy Penny Stocks
While searching for the best ones to invest in, you will have to look up a lot of financial news and view a lot of different economic news all the time, as penny stock markets are affected by all market motions. Penny stock market costs are governed exactly as per the demand and supply analysis of shares.
A sector that should be considered very strongly is crude oil, as the dollar is weakening quite considerably in the international market, and the BRIC economics are having a severe rise in the demand of crude oil. Fact is, inflating oil prices are going to lead to a very different market behavior in the upcoming years, and fluctuations can be capitalized upon. Oilsands Quest and other oil companies being good options to invest. Penny stocks from software sectors many not boom, but from the point of view of long-term investment, you can invest in the same. Medical, surgery, and other allied sectors are expected to go really high. Apart from that, media services, banking and finance, and the automotive sector will also gain considerably.
Make sure that you analyze the entire market and divide you investment into parts, keeping a tab on competitors. For ease, you can also invest in a handful companies. Penny stocks are not like common stocks. They depict a bit slower projections, and at the same time there is a possibility that you might be able to get better projections from several companies from the same sector at the same time. For this very same reason, reading the advice from people who engage in penny stock trading will give you an excellent perspective. The beauty of penny stocks is that you can put your investments and buy stock from several channels due to the small denominations, and also shuffle them as per the need. Keeping out an analytic eye on the market pays off brilliantly.
Disclaimer: This WealthHow article is for informative purposes only. Consult your financial advisor before making any investments.