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Trading Penny Stocks

Penny stocks are different from “normal” stocks in many regards. Unlike stocks that trade on the major exchanges like the New York Stock Exchange and the NASDAQ, penny stocks trade on the OTCBB. This stands for Over The Counter Bulletin Board which is an electronic trading service offered by the National Association of Security Dealers.

Although the OTCBB is regulated it is nothing lie the regulations of the NYSE or the NASDAQ. Companies that can’t meet the incredibly strict criteria set by the major exchanges often have to revert to the OTCBB and list themselves as penny stocks.

For many companies looking to go public, this is seen as a stepping stone to their growth before they can move on the major exchanges, but the sad truth is that most penny stock companies never make it to the big boards.

Penny stocks are typically listed at prices between 10 cents and two dollars a stock and they have the suffix “.OB” identifying them. In recent years many stock on the major exchanges have also became known as penny stocks and many stocks of five dollars or less on the New York Stock Exchange and the NASDAQ are now also considered penny stocks. As a penny stock investment these are probably much more secure since they are on the major exchanges and are heavily regulated.

Trading penny stocks can be a very risky venture, but for those traders with a bit of know how and diligence the returns are worth the risk. While a 20% gain would be considered great on the major exchanges, penny stocks can offer gains of 500% and more. If a speculative companies gets noticed, it can shoot through the roof overnight – making you a very handsome profit.

Unfortunately the flipside is also true. If your penny stock company fold overnight you can potentially lose your entire investment. At least the stocks on the major exchanges offers some level of security. With penny stocks there’s very little security and companies can disappear completely – leaving you with nothing to show for your penny stock investment.

Trading penny stocks is all about weighing the risk and the reward. Like all investments, the massive reward usually comes with a massive risk. To be successful at trading penny stocks, you need to find ways to eliminate as much of the risk as possible. The more you can eliminate risk, the greater your chances of success with trading penny stocks.

More information and tips on penny stock investing