What is Penny Stock Trading

Any trading 5.00 or under is termed as Penny Stock, other titles can be associated as well; such as Nano stock, and Micro Cap. Although the three names differ, they are. These stocks are offered by smaller, struggling companies, or newer ones who have not the means to trade with the larger stock exchange, and what to get their name out there.

Many amateur investors new to the stock world are lured in by the appeal of low cost and the chance for rapid growth of their investments. Penny stocks should be treated as risky as their upperclassman, regular stock trading. Penny stocks though have been known to hit heights up into the hundreds in a short amount of time. On the other hand they can plummet just as rapidly. Changes in the market can cause these up and down fluctuations. Penny stock trading is not the stock market for dummies.

Penny transactions are handled by brokers; they do not make any commission, but make their money on the spread instead. The asking price is considered the spread, which could range from 23% and even 100% in some cases. Brokers have been known to hold onto these Penny stocks, and sometimes at a great risk to wait the fluctuation out in the hopes to raise the value, and in some cases this pans out for them, but these are rare occurrences, and at a great risk for all involved.

There are four types of reasons it is advised not to Trade in Penny Stocks:

First: There is little known history or background of these companies. The company could be headed for a down fall or have a very poor business history. It is hard to get any of this information, because they are not under the same strict codes.

Second: Financial status is a big risk. The Over the Counter Bulletin Board, or OTCBB do not enforce the same strict practices as they do with major stock protocols. Without such information to research, it would be extremely difficult to invest wisely. The risks run high when dealing with Penny Stocks, large sums of money could be loss.

Third: The fact the Penny Stocks are considered a liquid- due to the reason there is no real interest for the stock to actually rise, this in turn causes lower share prices. More average day people can invest because it is affordable to purchase.

Fourth: Last but not least, Penny stock trading can become a tax consequence. A serious Penny stock trader should be advised to work closely with a Tax Specialists. In this waythey can be assured of the consequences of the taxes involved as well as the benefits which could be involved as well.

According to The SEC (Securities and Exchanges Commission) have stated: “Penny stocks are a pretty sure way to lose money.” Penny Stocks Trading may have more side effects, but are still very much needed in the trade world. Without them it could prove quite difficult for a fledgling company to get on its feet.