If you’ve read any of my other postings you’re probably going “Ha, now he’ll tell us how it’s not possible!” Well, “Ha, it is possible” I haven’t personally done it, but it’s no different than any other way of making money in the markets. You trade cash for stocks you find more valuable and trade stocks for cash when you find them less valuable. However, there are some major differences .
What is the Penny Stock Market?
When I speak of penny stocks or penny shares I’m referring to any stock traded outside the major exchanges like the NASDAQ, NYSE, AMEX or other large national exchanges. Some of these small exchanges often referred to as “over the counter” are pink sheets and OTCBB. These stocks generally have low, or at least sporadic, volume; their market capitalization is small – often less than $100 million; or their per share prices is less than $1.
How is Trading in Penny Shares Different than Regular Stocks?
The biggest differences the trader needs to know are:
- Larger Spread - The bid/ask price on penny stocks tend to be a much larger percentage than on regular stocks. This is due to the low volume and minimum variation between prices. 5 cents of a $10 stock is only 0.5% versus 5% of a $1 stock.
- More Easily Manipulated – You may have worked a good system out, unfortunately unscrupulous people can more easily manipulated a small cap stock. With low volume a small surge of money can change the price quickly without reason – or even clever marketing schemes.
- More Volatility – The above reasons create a wilder ride that may make it difficult to find a method that is consistent. It also just may be too emotionally hard to maintain your system.
For the investor the lack of media coverage and government regulation makes it difficult to trust information you come across. Without meaningful information (inside knowledge) I would strongly suggest fundamental investors to stay clear of the penny stock market.
For the trader who still thinks his millions are in the penny stock market I say “Go for it!” However, please spend your time in the trenches learning on regular stocks, options, and commodities first. Feel free to paper trade the pink sheets on the side, but the knowledge you’ll gain from the regular markets first will greatly increase your chance at the 100% per week system! Don’t feel tempted to jump on one of those purchased systems unless you designed it, and definitely don’t take your chances with a random email or forum posting.
The penny stocks are the wild west and I just want you to have your six shooter ready before you venture out.
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