If you are looking for affordable stocks to trade then penny stocks might be just right for you. A penny stock is a stock that trades usually for less than one dollar. This means they usually trade for pennies. There are microcap stocks that traders sometimes refer to as penny stocks but they trade a little higher, usually no more than $5. And day traders and investors sometimes refer to them and penny stocks as nanos and small caps. All of these are affordable stocks to trade.
With penny stock investing, there are no minimum standards they have to meet for their listings, since they’re done on the OTCBB (OTC Bulletin Board) and the Pink Sheets.
In the end it really doesn’t matter because what makes a penny stock a penny stock is the price not where it is traded.
These types of stocks come from companies with a small amount of capitalization. That simply means the total value of that company’s stock.
The attraction of penny stocks is that you can start trading them with a small amount of capital. Unfortunately there is much less information about them for you to do in-depth research. Unlike larger companies whose stocks trade higher your will not be able to access reports filed with the SEC for penny stocks.
Even though you don’t have the luxury of having this information upfront penny stocks are still a good way to get in on the ground floor of an up and coming company that has a high probability for future success. You will have to work a little harder on your research of these companies but it can pay off very nicely if you do.
Once you find a penny stock that you think has potential for good returns you can do the research and try to find out if the company did make their financials available to the public. Don’t just take the word of anyone else that it is worth investing your hard earned money in. Trading penny stocks off a “hot tip” is just gambling.
Some red flags to look for in these types of stocks are when the auditors have not filed a certified financial statement for the company or when the auditor declares that the company may not have enough capital to keep it operating.
The price of your initial investment when trading penny stocks may be very low and that makes it very, very attractive. But you must be mindful that these stocks are very risky because it is very hard to have a way to see the history of the company and therefore you can sometimes be trading blindly hoping that things move your way.
