Penny stocks don’t typically come up in conversation on stock market news outlets like CNBC or Bloomberg TV. When placed in comparison to shares of bigger, well-established corporations, micro-cap stocks are often viewed as higher risk. These are more volatile, less liquid and less established companies. They can even fall victim to scams so it’s important to get the big picture on penny stocks before you buy.
What Is Micro-Cap Stock?
Stocks are placed into a number of categories. Market capitalization is one of these categories and takes into account the total number of shares that are outstanding as well as the price of a penny stock. Micro capitalization or “Micro Cap” companies have a value between $50 million and $300 million.
Anything that is less than $50 million is considered “NanoCap” companies. If you compare these penny stocks to any one of the companies in the Dow 30, for example, the latter has an average market cap of over $200 BILLION.
Why Are Penny Stocks Risky?
You’ll read about it a lot, “Penny Stocks Are Risky.” But what makes them so risky? Many penny stocks are issued by startup phase companies that usually have little to know track record. Sometimes they will have management in place that also have little to no experience running a publicly traded company.
Another risk has to do with the market for penny stocks. In comparison to popular public companies like Apple, Google, or Netflix, penny stocks don’t have a lot of trading volume. This, according to the Securities and Exchange Commission, “may make it difficult for you to sell your shares when you want to do so… any size trade can have a large percentage impact on the price of the stock.”
Where Can I Buy Penny Stocks?
Many online brokers will allow you access to buy penny stocks. Checking to see if your broker has access to stocks that are traded on the “over-the-counter bulletin board” or “pink sheets” will be important. Many brokers will also have additional fees in order to trade penny stocks. TD Ameritrade, Etrade, Fidelity, and many others give you the ability to buy penny stocks.
Where Can I Find The Best Penny Stocks To Buy?
This question is harder to answer than it may appear. The rate at which investors are buying and selling penny stocks is higher and changes regularly. A penny stock that was up 100% on record volume a day ago, maybe completely dormant the next day. There are a number of penny stock discussion forums, penny stock chat rooms, and even penny stock newsletters that offer information. But “buyer beware” as many of these forums could have paid advertisers or large shareholders in them. Their goal is to hype a stock for a short period of time. It is very important to do your own diligence. Find information about the best penny stocks to buy. PennyStocks.com is the top outlet to get you started.