Investing and trading in penny stocks is potentially highly rewarding but also tremendously risky. If you still want to invest in and trade penny stocks you should start out with a small amount that you could afford to lose. Okay, now that I have scared you and made you regret getting exited about penny stocks in the first place let me leave you with some optimistic words. NFA and CTFC Required Disclaimers: Trading in the Foreign Exchange market is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk.
You would be hard pressed to find a stock trading on one of the larger exchanges that had the potential to double in a month. Without a basic definition of the stocks we will be investing in we will make countless mistakes out of confusion and lack of direction. The Eligibility Rule dictated that all non-reporting OTC companies already trading on the OTC market would have to report their financial information to the SEC, banking, or insurance regulators in order to meet eligibility requirements. However, before deciding to participate in Foreign Exchange (FX) trading, you should carefully consider your investment objectives, level of experience and risk appetite. Now keep in mind that if a stock existed which had the potential to double in a month it would also have the potential to lose all of its value in a month. You will have to look within yourself and discover if you have the ambition and persistence to learn everything there is about penny stocks.
While there are many stocks that trade for a cent and when traded correctly can yield vast profits, the definition is broader. At this point our only definition of a penny stock is a stock which trades either on the over the counter market or on the pink sheets. An OTC security is any stock that does not trade on Nasdaq or a national securities exchange. A phase in period was set for all trading companies starting in alphabetical order from the beginning of July 1999 to June 2000. The book is written for people who have already decided that they want to invest and trade penny stocks. Trading financial instruments of any kind including options, futures and securities have large potential rewards, but also large potential risk. But what if you decided that knowing the huge risks you were about to undertake you still wanted a crack at buying stocks that could double your money in a month.
This book should prove to be more than enough ammunition to beat the odds and discover the right next penny stocks.
The only other parameter we will use to define a penny stock is that it must be trading under a dollar at the point we buy it. OTCBB stocks include national, regional, and foreign equity issues, warrants, units, American Depositary Receipts and Direct Participation Programs.
I believe that penny stocks, like other financial and business ventures, require an enormous effort and hard work.
You must be aware of the risks and be willing to accept them in order to invest in the options, futures and stock markets. There are many penny stocks with share prices in the dollar range and a market cap of over a few hundred million dollars, sometimes even equalling a mid cap in the price of their market valuation.
We might chose to hold a stock as it climbs above a $1 but we will never consider a stock over a $1 to be a penny stock for our purposes. We will emulate the entrepreneur by learning everything there is to know about penny stocks and the market they trade in. By labelling any stock trading under $5 a penny stock they help separate themselves from what they see as highly risky securities. In order to do so successfully we will analyze the penny stock market from the ground zero. While both definitions are accurate four our intents and purposes we will define a penny stock as any company trading on the over the counter market. This system enables anyone form the largest firm to the smallest investor to know how many trades are taking place in a stock, the direction of the trades, buys or sells, and the volume in real time. If the company did not report in that 30 day grace period the stock was delisted from the OTC and moved to the pink sheets.
But once they do experience a moment in the spotlight you will see many, sometimes thousands of investors, rushing to buy the stock. Our definition of a penny stock will eliminate stocks trading under a dollar on the New York Stock Exchange or stocks trading for .50 on the Nasdaq Small Cap market. But since the float of the stock might only consist of 1,000,000 shares there will not be nearly enough shares for all of the buyers.
The past performance of any trading system or methodology is not necessarily indicative of future results.
The reason we will not consider those stocks to be penny stocks is because more often than not a stock trading for under a dollar on one of the larger exchanges will soon be delisted due to dire troubles in its business.
The Market Makers will want to buy and sell the stock since they make their money in stocks experiencing large amounts of volume.
When I first started investing in penny stocks three years ago I lost 80% of all the money in my account within the year. But the slim percentage of companies that do beat the odds can experience dramatic growth in their stock prices of upwards of 10,000% in a year. A stock trading under a dollar on a major exchange most likely once traded way above that price and now due to either mismanagement or external factors is in financial troubles and headed for bankruptcy. They will set bid and asks for the stock hoping to be able to buy and sell the volatile stocks.
But the only way for them to keep up with dramatic surge in volume will be to raise their prices as much as they need to in order to buy stocks from the public. I have seen many stocks issue positive news and then have the price of their stocks double the same day. The floats were often small and the investors felt that the stock was worth many more times than what they paid for it. Or another Market Maker might enter the fray and realizing how much of a demand there is for the stock he will raise his bid to .27 hoping to buy up all the shares available. I have also seen stocks like EPWN move from .09 to $8 in four months on a steady release of positive news. The Market Makers make money regardless of the price of the stock since they will always sell it for less than they buy it and buy it for less than they sell it. He might be convinced that the stock will soon be trading at .30 due to the high demand building up.
The Nasdaq has very strict qualifications for letting a company list its stock on its exchange.
If they sense that the availability of shares is drying up they will be forced to move up their bid so they can also buy stocks to resell later on. Once their share price falls and stays below a certain price thresh hold for an extended period they are removed from the Nasdaq and then resume trading on the OTC market.
If you are the only sell that day and there have been no buys the Market Maker will not be in a rush to buy your shares since he will most likely be stock with the shares for a while.
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