Penny stocks are those stocks which has a high risk of investment when you own it. In United States these stocks are traded in the stock exchange whose value is less than $5. These types of stocks fluctuate a lot in price. You may find it to gain more dollars in just few hours of trade and other part is just opposite. Some investors are surprised as it disappears suddenly from exchange. According to exchange regulation penny stocks have fear to be delisted if they trade below their listing price. This can happen due to bad financial gain of the company which leads to bankruptcy. Those who want their money to be safe and expect good return, then invest smartly. You realize the company business, their revenue, sales, profit and loss etc before investing. This strategy helps to avoid any kind of frauds and loss of money from such stocks.
Hot penny stocks are matter of risk and those who want to take this risk must buy these stocks. These stocks also have capability to give you good return if you turn to have good fortune. Many times these stocks have proved to be profitable for long term over the years. In the stock market lack of liquidity and volatility makes penny stocks more vulnerable. Penny stocks are traded over the counter (OTC) through quotation services such as pink sheet or bulletin board. Many new investors of the stock market get lured of buying at low price and earning huge money as profit on the investment. It is informed to all that penny stocks are high risk investment and all investors should be aware of the risk factor involved in it. This is more important message for all the new investors. The risk involved is just because of limited liquidity, fraud and lack of financial reporting.
Penny stocks are considered as highly speculative also because of large bid-ask spreads, small capitalization, limited following and disclosure. Experts of the stock market say it stocks that are traded for pennies. It resembles that the company is small in size with limited fund. The company also has to be seen in limited listing requirements with fewer filing and following least regulatory standards. You can consult a broker to get tips on how to invest in penny stocks. The tricks will help you to avoid mistakes and frauds involved in it. Penny stocks are known to earn misfortune due to loss of money. Generally investors find themselves with frauds in stocks but the case is not the same with everyone. If you notice the positive side of stocks then you will find in a small investment you gain maximum profit. If you are true investor, then it is better to learn the market, conduct your own research on studies, expertise, and information provided by the company and then come on the decision of investing. This will minimize the high risk of investing in penny shares and you may find lots of earnings.