Companies do not boom into success as soon as they are founded, they are slowly created by proper management and maybe a bit of luck to climb to the top. Newly founded companies sell their shared at a low price to raise capital and these are called penny stocks. Penny stocks are defined as being less than 5 $ and have the potential of rising thus making money for the investor. Many scour the penny stock trade to find a wining stock but choosing the right ones is not all in a name, the number of stocks and their worth.
Buying Penny Stocks
You will not find penny stocks in the main exchanges because these are reserved for regular stocks whose value is much greater. Penny stocks are traded over-the-counter like in America they are sold on the OTC Bulletin Board. Investors buy these stocks through a broker dealer who gets the quoted price either over the phone, email or a proprietary trading system from the market maker. The broker will inform his clients of the price and secure the stocks for them.
Finding the Right Stock
The most difficult thing is choosing a promising company whose stocks will increase so you don’t end up with many worthless stocks. Penny stocks are prone to sudden drops one day and the next day you’ll see them go up and they could even be higher than their previous value. Predicating the rise and fall of these stocks is difficult even for experienced traders but there are ways you can get a better insight into whether the company has a chance in succeeding. Before you start buying shares you need to learn how to trade with them to minimize the risk. Looking at the fundamentals that may hinder or incite company’s value is the basic of investigating penny stocks. Exploring the market trends or the industry of those penny stocks can provide you of a clue into the industry you’re investing. One more technique used for evaluating stocks is to follow the company’s marketing. Investors can look at the company’s brand awareness and the way they promote their business. You can tell how they are different from their competitor and if their product or service offers something their competitors cannot provide.
Staying in the Loop
To buy the right stocks you need to be on the lookout for any news that could be beneficial for you. When another larger company decides to do a merger or to acquisition this can make the stock value rise significantly. Companies decide on mergers because they think it’s a good investment so it will help them in their market and this doesn’t mean that the company is in trouble of going bankrupted it means that they want to raise their value.
Rookie investors often make the mistake of not thinking carefully about the penny stocks they are buying by judge solely on their price. Whether the stock is worth 10 $ or 5 pennies any kind of investment should be taken seriously and you should get as much information in the company as you can before you make your decision.