What is a Penny Stock?

Penny Stocks are stocks that usually trade under $5.00 a share and are typically traded on the Over-The-Counter (OTCBB) Market. These lower priced stocks are speculative securities of smaller companies that have not reached the listing requirements of NASDAQ or NYSE/AMEX. Small companies use the OTC Market to raise money to fund their growth and expansion. Most of these companies have goals of growing their business and up-listing to a larger exchange where more capital is available. These Exchanges are essential building blocks for public companies to utilize pools of capital in today’s capital markets. It is the core of the free market system at work. When you trade 1 share of stock you participate in this process.

These Penny Stocks are often thinly traded and highly volatile which opens the door to the opportunity of huge upside potential. With the possibility of big gains comes the risk of big loss… these stocks are high risk and are not recommended for the novice trader.

Please visit the U.S. Securities and Exchange Commission’s website for more information on Penny Stocks: http://www.sec.gov/answers/penny.htm

Why would an investor want to trade Penny Stocks?

Unlike stocks traded on the larger exchanges, Penny Stocks offer the opportunity of lighting fast profits. Penny Stocks are thinly traded and an influx of buying pressure can make a company’s value quickly appreciate. Penny Stocks can and often make quick percentage gains; sometimes the gains can be as high as 1000% percent or better. Getting in early on Penny Stocks can often reward investors with huge returns.

Remember with this opportunity comes a big risk and you should never invest more than you can afford to lose.