Cheap Penny Stocks – To Buy or Not To Buy?

Cheap Penny Stocks

Penny stocks are known as shares that trade for less than $1.00. Cheap penny stocks are also defined as micro-cap stocks which mean they have a low market capitalization and are highly risky. They are not as easy to trade as stocks with large markets, but capitalizing on the risk can provide investors with profits. Penny stocks are highly volatile and subject to manipulation and pump and dump schemes. The US Securities and Exchange Commission has very specific rules that define and regulate penny stock sales and a penny stock needs to meet price regulation, market capitalization and minimum shareholder equity.

Cheap penny stocks are not held in the same regards as high volume and major stocks, but there is high potential and growth in trading cheap stocks. If you are a beginning stock trader and your bank account does not have a $30,000 discretionary sum to open a brokerage account, trading cheap penny stocks gives you the opportunity to trade from sector to sector without losing a great deal of money or having a huge bank account. Penny stock trading can give an investor a potential for huge payoffs. New penny stocks can shift up 500 percent over a very brief time period. Conversely they can also move down 500 percent. You might be advised to be aware that you can lose your speculation when trading in penny stocks.

Watch for trends and patterns as well as high volatility. Use a buy and hold strategy and watch the stock prices. If you can determine a trend or a patter in the stock prices you should be able to purchase cheap penny stocks on the low and sell at the high. When purchasing penny stocks set a price target for the sale and watch the market and stand ready for sudden upswings in price. Sell at your target price and lock in your gains.

Be prepared for tax issues when trading in cheap penny stocks. Penny stocks generally move fast and this makes them beneficial for short-term trading. Short term trading however can have tax consequences. Build taxes into your trading model. If you sell stock you held for less than a year your will be taxed at your normal tax bracket.

To find penny stocks without willing to risk much spread out your stock purchases and only buy a few of each type. This will prevent you from losing all your investment at one time. Look through the day’s biggest gainers and most active on the NASDAQ and DOW. Look for undervalued penny stocks that are currently trading around one dollar. Click on the stock symbol of each company you are interested in and research their prospectus. If you find a penny stock you are interested in open an account with an online brokerage house, and find the option to purchase stocks with direct purchase options. Determine the minimum m purchases and requirements and start investing. Do remember that investing in penny stocks can be fun, but never invest more than you can afford to lose. Traders often refer to penny stocks are often thought of as the “lottery” of the stock market.