Many investors are often not aware just how profitable it can be to buy penny stocks with high growth potential. The opportunity for some large gains from these low priced stocks is available to traders who want to start with a really small investment. A lot of large companies have started out with low priced penny stocks and made some fortunes for many of their early investors. Keep in mind, however, when you’re dealing with new companies that haven’t become profitable yet the idea of investing in some low priced stock can mean there’s many risks along with potential rewards.
Any stock that is selling for less than $5 a share is what the Securities and Exchange Commission (SEC) generally considers a penny stock. You may also find here are others that define trading under $3, or less than one dollar per share as a penny stock. It really doesn’t matter which definition you end up using, a very low priced security is still called a penny stock. It is the lower price of these shares that provide the opportunity for an average investor to be a position of controlling a fairly large number of shares with a smaller investment.
Keep in mind that penny stocks are usually not going to be traded on the New York Stock Exchange. Most of the time they are usually on the Pink Sheets, or Over the Counter Bulletin Board (OTC), but there are also times when they can be located on the NASDAQ or other exchanges like the Toronto Stock Exchange (TSE) for penny stocks in Canada. Quite often you’ll discover information concerning these companies can be scarce, as well as unreliable. It might be possible to locate information on the internet, but that’s usually little more than promotional material the company or a stock guru has decided to release. It’s up to you to perform your own due diligence in gathering all the information you can about the company, its products, clients, market, as well as its financial basics.
Always keep in mind there’s a reason these stocks are inexpensive – the company could have experienced financial problems in the recent past, or just be new. Needless to say, the majority of these stocks won’t become big winners, and in most cases probably won’t rise about their status as penny stock, and may even fail eventually. There’s always a possibility some of the stocks could see gains of 50%, or even 5000%, and that’s the real hook for people who are investing in or day trading penny stocks.