Rules Of The Road For Penny Stocks
Many of these micro-cap stocks trade on the OTC Market. Per the Securities and Exchange Commission, a ‘penny stock‘ is any company with shares worth less than $5 a share. Because investors looking to buy penny stocks can purchase thousands of shares for hardly any money, the movement in these markets is staggering, creating a high-risk fiscal arena. Having said that, investing in penny stocks is a perfect example of a “high risk, high return” scenario due to its volatility.
One of the most interesting notions about penny stocks is the fact that these companies are not expected to adhere to the same set of regulatory standards as that of other markets containing large-cap companies like Google, Twitter or Facebook. These larger entities, the blue-chip stocks, must release any and all information about their business operations, and third-party media platforms are often involved in these processes as well. With penny stocks, because of their small-cap nature, these firms are far more reserved in the release of information.
Penny Stock Market Capitalization
When speaking about market capitalization, we are referring to the number of outstanding shares of a company multiplied by their current share price. Penny stocks typically have a small market cap because of their prices per share. Let’s say a company has 1 million outstanding shares available to the investing public, and each share is worth $0.25, the company would have a market cap of $250,000, a small number by comparison to large-cap companies.
No one would hold anything against you if you were skeptical of buying penny stocks especially with all the associated risks we’ve discussed so far, but here’s the rub: you can’t believe everything you hear in the movies. Though investing in penny stocks requires a generous amount of speculation and understanding of volatile market conditions, these stocks still present potential opportunities for considerable gains. These high volatility, small-cap stocks can shoot up at a moment’s notice, and it would be a mistake to miss out on this potential action.