Investing in Penny Stocks is one way you can make fast money on the stock market. Before you start trading here are 6 important facts you need to consider which any decent penny stock advisor should let you know.
1. The definition of Penny Stock can vary. Generally speaking a share in a Penny Stock will trade for less than $1. You may well come across other definitions which state less than $5 per share.
2. Penny Stock companies usually have a market capitalization below $500M.
3. Penny Stocks generally have a low number of shareholders and their average market trading volume is significantly lower than mainstream stocks. This is important to bear in mind as you may find it difficult to sell your shares.
4. Penny Stocks share prices can move dramatically in a day which gives opportunity for profit but equally you can easily lose your entire investment. Penny Stocks are considered a highly speculative investment.
5. One of the major difficulties facing Penny Stock investor is the lack of readily available information to judge a company. Most investors rely on word-of-mouth or Penny Stock newsletters. It always best to search Yahoo! Finance or another reputable financial web site for information on a Penny Stock company to verify the recommendations you hear about.
6. Penny Stocks are frequent targets of illegal "pump and dump" schemes. In these schemes fraudsters will talk up a stock on internet messages boards and through "spam" e-mail messages. Once they have made a profit on the shares they will sell, and stop promoting the stock which usually causes the stock price to fall leaving other investors stranded with worthless stock they cannot sell.
