Thriving firms aren’t born, they are designed – plus they should operate their way from humble beginnings and through the ranks similar to all people else. However, some investors believe that discovering the following “big thing” usually means scouring by penny stocks in the hope of obtaining the next Microsoft (Nasdaq:MSFT) or Wal-Mart (NYSE:WMT). Sad to say, this system will prove to be unsuccessful quite often. Browse on to determine why pinning your hopes on penny shares could leave you penniless.
Penny Shares 101
The terms “penny stocks” and “micro cap stocks” may be made use of interchangeably. Technically, micro cap shares are classified as these kinds of dependant on their marketplace capitalizations, when penny shares are looked at regarding their cost. Definitions differ, but generally a stock by using a current market capitalization concerning $50 and $300 million is actually a micro cap. (Much less than $50 million is often a nano-cap.) In line with the Securities & Exchange Commission (SEC) any stock under $5 is a penny stock. Again, definitions can range, some set the cut-off point at $3, when others consider only those stocks trading at a lot less than $1 to get a penny stock. Finally, we consider any stock that is trading on the pink sheets or over-the-counter bulletin board (OTCBB) for being a penny stock.
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The main point you really have to know about penny/micro shares is that they are much riskier than regular stocks. (For background reading on penny stocks, see Wham Bam Micro-Cap Scam and How To Evaluate A Micro-Cap Company.)
Penny Trading Stocks
A Fortune for a Penny?
What makes penny stocks risky? Four major factors make these securities riskier than blue chip stocks.
Lack of Information Available towards the Public
The key to any prosperous investment technique is acquiring enough tangible information to make informed decisions. For micro cap stocks, information is much more difficult to find. Providers listed on the pink sheets are not required to file with the Securities and Exchange Commission (SEC) and are thus not as publicly scrutinized or regulated as the stocks represented on the New York Stock Exchange and the Nasdaq; furthermore, much of the information available about micro cap shares is typically not from credible sources. (For more insight, see Pretty In Pink Sheets.)
No Minimum Standards
Stocks on the OTCBB and pink sheets do not have to fulfill minimum standard requirements to remain on the exchange. Sometimes, this is why the stock is on one of these exchanges. Once a company can no longer maintain its position on one of the major exchanges, the company moves to one of these smaller exchanges. Even though the OTCBB does require providers to file timely documents with the SEC, the pink sheets have no these kinds of requirement. Minimum standards act as a safety cushion for some investors and as a benchmark for some businesses.
Penny Trading Stocks
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