| Penny stocks, as the name suggests, are shares that | | | | The number of shares that the company has on |
| are available at extremely cheap rates. Being available | | | | 'float' is one indicator that needs to be ascertained. |
| literally for pennies, you can purchase such stocks for | | | | 'Float' is the technical term for the number of shares |
| as low as $2 per share. These stocks are usually of | | | | of the company being traded. Since penny stock |
| very small companies, which have a market | | | | companies are unregulated, they are not bound to |
| capitalization of less than $500 million. They are not | | | | report these details to the public. The information, |
| traded at the major stock exchanges like NASDAQ | | | | however, can be found in TV interviews, and the |
| or NYSE, but are listed in the pink sheets or the | | | | like, given by the representatives of the company |
| OTCBB (Over The Counter Bulletin Board), because | | | | occasionally, and are sometimes archived on their |
| these stocks are of companies that are unable to | | | | websites. There are forums on these websites |
| meet their listing requirements. They are also | | | | where stock brokers chat with each other. You can |
| referred to by other names such as pink sheet | | | | also get the information on the message boards. Find |
| stocks, nano stocks, small caps, micro caps or juniors. | | | | and read the articles and reviews written about the |
| Investing in penny stocks is considered very risky as | | | | company, which will give you a good idea of the |
| they are traded without any regulatory or listing | | | | float. For instance, if a company's float were very |
| requirements, which provide security to shareholders. | | | | high, it implies that it is merely issuing extra ones to |
| There are no accounting standards, and the | | | | keep afloat, hence would not be worth investing in. |
| shareholder gets no information about the change of | | | | Companies that have five million to one hundred |
| ownership of shares etc. This makes it a potential | | | | million shares are considered fit for investment. |
| source of fraud. | | | | The product of the company also needs to be |
| However, with proper research, investment in penny | | | | scrutinized. For example, it is important to find out if |
| stocks can be a tremendous earning potential. Not all | | | | the company would face obstacles in selling its |
| companies listed with pink sheet stocks should be | | | | products for various reasons, or whether patent |
| considered fraudulent. Some of them represent good | | | | issues would allow some other company to introduce |
| companies, which are too small to meet the | | | | a similar product in the market, all of which would |
| requirements of the NYSE or NASDAQ. Many such | | | | affect the value of the stocks. Another important |
| companies have a bright future. Unlike blue chip | | | | consideration would be whether the product is going |
| stocks, penny stocks have greater volatility; hence, | | | | to find appeal with the target consumers. |
| they have the potential of sometimes reaping rich | | | | While investing in penny stocks may be more perilous |
| dividends in a relatively short span of time. Thus, | | | | than putting your money in bonds or the shares of |
| investing in these startup companies at rock bottom | | | | established companies, the chances of striking it rich |
| prices can end up in making investors very wealthy. | | | | is also a strong possibility, which makes it a risk well |
| However, finding these companies requires research. | | | | worth taking. |