Jul 29, 2011

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Making Money With Financial Penny Stocks

Financial Penny Stocks

financial penny stocksStocks that trade for less than a dollar are generally considered financial penny stocks.  Most of these stocks are not available for trading on larger stock markets like the famous New York Stock Exchange.  This is because companies that are related to these stocks are not able to meet rigorous financial reporting requirements for large exchanges.  Instead, the stocks trade on smaller markets, most notably a market called the Over the Counter Bulletin Board.

Financial penny stocks are usually seen as a higher risk investment because the companies do not comply with Securities and Exchange Commission reporting.  Lack of reporting increases the likelihood of false claims about stock or business performance, as well as other unethical business practices.  However, this does not mean there is no gain to be had with small capital stocks of this nature.

Trading FInancial Penny Stocks

Beginning and experienced investors can make money by trading financial penny stocks, as long as they are willing to do the research.  Since companies traded on the smaller exchanges do not have to make as many reports to the SEC, it is buyer beware.  This means the buyer of any stock should conduct his or her own due diligence.  Reading internet and news articles on the company, monitoring past stock performance, and reading information posted on stock trading bulletin boards are all ways to become informed regarding the risks related to certain stocks.

It is important when researching online to vet information.  Investors should never utilize information, which appears to come from a single source and should watch for biased sources who might gain from purchases of the stock in question.  Penny stock profits can be made with very little shift in the value of the stock.  For example, a stock costing one cent will yield a 100% gain if it increases in value by a single penny.  Because of this, many unethical traders attempt to influence stock prices through posting false information on boards.  This information can be either positive or negative, depending on whether the posters want to encourage buying or selling of the stock.

Trading stock of any type is a gamble.  However, the low cost of a smaller stock makes these markets a great place for new investors to begin. It does not take a large shift in market value to make a profit, and financial penny stocks will give the inexperienced investor a chance to practice research and trading skills.

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