Penny Stocks are stocks that are in general considered to be highly speculative because they trade at a comparatively low price and small capitalization. These stocks belong to small public companies and trade for less than $ 5.00. They are very very small companies, and their shares are highly liquid. They are characterized by limited listing requirements and much less regulatory standards. In spite of high risk factor, all of us are familiar with the penny stock success stories in the recent years. This is because the stocks provide an opportunity to increase the profits dramatically. The best thing about the stocks is that they have the potential to move up very fast.
There are certain ways to lower the risk factor of investing in this less than $ 5 stocks. It is important to be extremely judgmental while investing. Most of these stock companies are startup companies and do not have a compelling business plan. One of the most reliable ways is to get enrolled with a newsletter service. There are many such web-based services providers who provide valuable inputs to find out the best penny stocks. Looking at penny stock success stories over the years, it can be easily said that one must look for companies with consistently high volume of traded shares. Consistent trade volume would mean a rate of return that is acceptable. Liquidity is another important aspect to examine before investing. The number of day-to-day trade volume is generally a better indicator of trade worthiness than average trade volume. To be a part of penny stock success stories, one must invest in a company that knows the tricks to earn profits. These companies use their profit to expand their business and this increases the shareholder value. Many startup organizations incur heavy loss and are constantly in the hunt for financiers. The chances of a higher return are much more when an informed decision is made on the basis of thorough research. These stocks are always highly volatile in nature. They can crash down as quickly as it goes up without any hint whatever. Therefore, it is a must to have an entry and exit plan which should be followed under all circumstances. It is also advisable not to invest more than 20% of the overall trading capital in the stocks.
It is very easy to get inspired by the several examples of penny stock success stories in the recent years. However, extreme caution is required to emulate their phenomenal success because there is always an equal chance of quickly parting with all the trading capital.
Source by Jeffrey Mills