Penny stocks are Low-priced, small-cap stocks are known as penny stocks. Contrary to their name, penny stocks rarely cost a nickel. The SEC considers a penny stock to be pretty much issue under $5. And while there are sub $5 stocks trading on big exchanges like NYSE and NASDAQ, more investors don't think of these when asked to explain a penny stock

1. how to buy penny stocks
The Are Penny Stocks?
Low-priced, small-cap stocks are known as penny stocks. Contrary to their name, penny stocks
rarely cost a tidy sum. The SEC considers a penny stock to be pretty much issue under $5. And
while there are sub $5 supply trading on big exchanges like NYSE and NASDAQ, a great number
investors don't think of these when asked to summarise a penny stock.
Most individual investors look at penny products like Wall Street's Wild West, an untamed world
having to do with investing detached from all the glitz and media coverage that comes with stocks
that are traded on vital exchanges. While the gains and losses can be beautiful impressive in the
penny stock world, they're not generally heard about elsewhere.
Just because you don't hear about nickel stocks every day on CNBC doesn't mean that tidy sum
stocks are without drama -- take SCO Group, any software company that brought on the wrath of
currently the world's computer-literati when it made claims to the UNIX operating system.
Unfortunately, penny stocks have also garnered one particular reputation as a game filled with
scams and data corruption. Indeed, penny stocks could be your wildest ride yet as the.
So then, if penny stocks usually aren't traded on normal exchanges, where can you buy them?
How to Buy Penny Stocks
Like any other stock you would buy, you can purchase shares of a penny stock through your
normal stockbroker -- regardless of whether or not it's listed in a major exchange.
While cheap stocks listed on exchanges wish NYSE and NASDAQ aren't typically considered
"penny stocks" an se, they can afford a lot of the edges of penny stocks without quite so much
risk. Those exchanges have strict listing requirements, and while they possibly will not allow for as
much of an upside in view that "true" penny stocks can, they tend to be whole lot reliable. More
often, though, penny stocks trade on list services like OTCBB and Pink Sheets.
Over-the-Counter Bulletin Board, possibly OTCBB, is a quotation. Unlike Pink Sheets, which is
only a quotation publisher, OTCBB maintains listing requirements (though may perhaps less
stringent than those of an exchange). For this reason, OTCBB has a little bit of added
authenticity.
Pink Sheets is a system that provides investors with quotation information when stocks that are
registered with it. Unlike OTCBB, however, Pink Sheets isn't registered with the SEC and is not
going to enforce any listing requirements. Bottom Line: Pink Sheets stocks are risky.

2. The Potential Payoff of Penny Stocks
With all our own risk involved, why would anyone want to put his or her her money in a penny
stock anyway? The answer is volatility.
Because penny stocks are prone to violent change (volatility), many people believe that they'll
luck out through a stock that will jump from $0.08 to $8 in two weeks. And it's happened. Scour
enough buying and selling message boards and you're sure to find success content from
investors who made a mint while "playing all the pennies."
Companies that can successfully make the jump from anything stock to power stock are rare, but
when find them they pay out in spades. Numbers will differ quite a bit in the penny stock world,
then again investors have raked in gains over 1,000% in per couple weeks' time. The real trick is
finding the right stock.
The Risks of Investing in Penny Stocks
Even bonafide penny stocks are plagued by very high risk. Five principal reasons that risk is so
inherent in small cap stock investing are low liquidity and poor reporting requirement.
As investors saw most recently with the sub-prime lending market, liquidity setbacks can be a
huge deal for investors. And rather than lending, low liquidity plagues the penny stocks on a daily
basis. Because penny stock investing is such virtually any niche area, even relatively low trade
volumes can eat an impressive effect on a stock's share price. According to to the Securities and
Exchange Commission (SEC), "Penny stock shares may trade infrequently, which means that it
may seem difficult to sell penny stock shares once you own them. Because it may be difficult to
find prices for certain penny stocks, they may be impossible to accurately price."
What this means is that if you engage with penny stocks you may end up with a brand new whole
lot of worthless stock that you can't pick-up rid of.
Another concern for investors is the lack with regards to stringent reporting standards for
companies whose stocks trade on OTCBB or in the Pink Sheets. OTCBB does require that
registered companies stay current with SEC filings, only those filings are the bare minimum -- well
down further what an exchange-traded company would have to file.
Since institutions that are delinquent in submitting their filings to the most important SEC are still
so accessible to individual investors, penny stocks have proven to be a treasure trove over
dishonest people.
That's one of the reasons that the Securities and exchange commission's has taken such an
active role in making certainly that the American public is protected from unscrupulous
establishments and individuals in the penny stock arena. For your incredible broker to even sell
you a penny stock, they will be legally required to send you a document outlining that this risks of

3. penny stock ownership. There's a reason and regulatory bodies go to such lengths to help make
sure that you're not blindly investing in penny stocks; scammers are out there.
What's With the Penny Stock Junk mail?
Spam is the scourge of the earth. It fills our e-mail inboxes with garbage and junk, and chances
are if you get a decent amount of spam, you would possibly have seen messages designed to
promote penny stocks.
But the unsolicited mail isn't relegated to e-mail. Message boards, chat rooms, session groups --
even advertisers on legitimate websites -- unquestionably are all home to their fair share of the
bits and pieces. It goes without saying that you shouldn't go on the market and buy a stock that's
praised in a questionable e-mail, but some people do, and scammers make a large group of
dollars off of unsuspecting investors.
One of the largely prevalent types of penny stock scams out there is truly the "pump and dump."
In a pump and get rid of scam, the bad guys load up on a bargain-priced and worthless stock,
convince inexperienced investors to buy it at inflated prices (pump), and sell their shares right off
when the investors push the price up enough (dump). For help on avoiding pump and dump
scams, look over out the SEC's article on the matter.
How to Snip Those Pennies
So now that you know the scary section of penny stocks, how can you cash in about the potential
growth that they have to offer? Here are three things you'll want to look for when picking a penny
stock to make sure that you will don't get penny stuck: Underlying business, financials, and
footnotes.
When it comes to penny stocks, a company's underlying service is even more important than it is
in exchange-traded stocks. That's because the penny stock world is natural to "shell" companies
that are legally incorporated, but in no way have any business operations. Shell companies are a
handy opportunity for scammers, because they can be easily arrangement up as a "pump and
dump" stock. Look for companies with real, sustainable business operations and you'll be one
step closer to finding a good penny sell.
Like with any stock, a penny stock's financials are an essential tool for investors. But with penny
stocks, this particular question is more about the quality of the lending statements. Does the
company file on time? Who becoming the auditing firm? Do the company's financials look in a
healthy condition? If you can answer yes to those three questions, it's time to stroll through the
footnotes.
In most companies, footnotes are an oft-overlooked, yet very important part amongst its filings.
And while you might be able if you want to get by without reading GE's footnotes, miss the
footnotes for a penny stock, and your portfolio might let pass its mark. Since penny stocks are

4. smaller companies that the majority of are more prone to things like related-party transactions and
consequently non-GAAP accounting oddities, don't walk around the footnotes for a penny stock.
Conclusion
Fact: Penny stocks are inherently risky. Fact: Penny stocks can be fodder for scammers. Fact:
Pound stocks can make you a lot of money.
Even accompanied by all the risks and drawbacks involved in penny stocks, many investors
simply find that the potential windfalls can be well worth it. There's a reason that penny carries
several remain popular among a brave clique of investors: Anything stocks can deliver a very
impressive return. Hopefully, you are able to find that your new penny stock know-how makes
those Wild West of investing a little more tamable.
Jonas Elmerraji is the editor and portfolio manager of the Rhinocerous Stock Report, a free
investment advisory that returned 15% in 2008. He is a contributor to numerous bank outlets,
including Forbes and Investopedia, and has been highlighted in Investor's Business Daily, in
Consumer's Digest and on MSNBC.com.
Educate yourself about in depth strategies on how to trade penny stocks
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