What Is Penny Stock Investing?

March 8, 2009 by  
Filed under Penny Stock Trading

Penny stock investing is when you are buying stocks that are selling for less than one dollar a share. Penny stock investing is often used in day trading where a trader will watch the market, buy at a certain price and then sell when the stock rises. Day traders will usually speculate on the price of penny stocks based upon the market as well as the type of company being dealt.

In order to get started in penny stock investing, you need a brokerage account. This is an account with a stock brokerage firm where you can trade stocks. If you are just starting out with penny stock investing, you are going to want to do some research on the companies before you start using real money from your brokerage account. You can get a brokerage account that will charge you a flat fee per trade.

The problem with investing in penny stocks is that unlike larger companies, where you can easily obtain financial information including financial statements and projections, it is more difficult to find out information about the penny stock companies. Although the information is on file with the SEC, it may not be as available. Many of the penny stock companies are up and coming companies. Some will pan out and end up being a viable investment. Others will never take off and some will fail. Unlike larger companies that are a bit more stable when it comes to price, penny stocks are liable to shoot up or crash.

Day trading with penny stocks can be lucrative if you know when to enter the market, how much to risk and when to sell. When you get greedy and start to look for a higher return, you run more of a risk of the stock failing. You should learn as much as you can about the company itself as well as the future of the industry in which the company is engaged to make a savvy trade when penny stock investing.

While some stock investors state that penny stocks are those stocks below one dollar, others will state that penny stocks are those that are below fifty cents. Either way, the consensus is that penny stocks are inexpensive stocks that have either not yet hit their stride or have crashed down to the point where they are nearly worthless. Investing in penny stocks can be risky, but if you are day trading and understand how to work the market, or if you have done your homework on the stock company and speculate that it is a good risk, then you have an opportunity to make some decent money when you are investing in penny stocks.

The more you know, the better off you are when it comes to penny stock investing. You can get information online and even join forums where you can talk about investments with other penny stock investors and get the best tips. Be sure to research as much as you can about any company in which you plan to invest in their penny stocks.