Penny stocks are simply low cost shares in companies, typically anything under $5.00 per share. Once you buy penny stock, it may be hard to sell again depending on the daily stock volume. They may also be inaccurately priced for the same reason. Like other speculative stocks if you invest in a penny stock, you should be aware that you could lose your entire investment.
Penny stocks are generally traded on the pinks sheets or over the counter but some may also exchange on major exchanges like the NYSE. Generally the market in which these stocks are in is determine by the demand for them and the price of the stock. Be aware of brokers that attempt to sell you new stocks that haven’t yet been listed in a market yet. Also be cautious of any pink sheet penny stocks as very little financial data is available for such company stocks and the SEC does not actively monitor them.
The federal law requires that you be made aware of the offer and the bid before you purchase a stock. You also must be informed of the compensation the firm and the salesperson will receive for the trade of your stock. After the trade, you must receive a confirmation of your purchase and the price. The offer price is the price the dealer is willing to sell the stock to other dealers. The bid price is the price at which dealers are willing to buy the stock from other investors.
The difference between the bid and the offer is called the spread. A spread that is larger than the asking price can make it very expensive to resell.
After you buy a penny stock, the firm which you went through must send you monthly statements. However, if the firm has not bought or sold any stocks for six months, they are required to send you a statement every three months.
Before you buy any type of stock you should get advice from a professional investor and do not rely on a stock broker for penny stock picks. Penny stocks can make you a lot of money if you know what you’re doing, but are also difficult to manage, so think before you buy.
