How do you define what is a penny stock? There is no official definition. Some say any stock under two dollars, some say under five dollars.
I call a penny stock any stock that trades under one dollar. Most of the stocks I trade are under .05 and I trade a lot of sub-penny stocks. A sub-penny stock is any stock that trades under one penny. (.001-.01) A sub-sub penny stock or super sub are those stocks trading in the .0001-.0009 range or hundredth of one penny.
There are different markets that penny stocks trade on. The OTC Bulletin (OTC-BB), over the counter (OTC) and pink sheets markets here in the USA. In Canada there is the TSE and TSE Venture Exchanges. Also there is the NASDAQ small Cap Market. All the shares on this exchange are one dollar and up so are not penny stocks by my definition. Also there is the American Stock Exchange (AMEX) .The NASDAQ and AMEX are the safest with reporting requirements that enables investors to have access to the companies financial filings.
Pink Sheets are the most risky with no reporting requirements. Sometimes they even gag the transfer agent so you can’t even find out the share structure, (bad sign). Yet these risky, pink sheet stocks give you incredible leverage. Most if not all of the super subs are pink sheets. The super subs give you the most bang for your buck. I look at it this way, the leverage you get with the super subs makes up for them being more risky.I would not call it investing with pink sheets, actually it is speculation.
With short term penny stock trading, it’s all timing. You can make money buying the worst companies at the right time and money can be lost buying even the best companies at the wrong time. Actually I need to say buying and SELLING at the right time will make you money. I’ve heard it said that 80% of a successful trade is in selling at the right time.
Why trade penny stocks: penny stocks can make you very wealthy in one to three years if you learn how the game is played. You may have heard investing in penny stocks is risky. It is very risky, specially if you don’t know what you are doing. High risk/high reward. Do not trade with money that will destroy you if you loose it. So why do it if it is risky?
The number one reason is leverage.It is simple math. Because the price is so low you can buy millions, hundreds of millions, even billions of shares. At the lowest price of .0001 you can buy a million shares for $100.00 and hundred million shares for $10,000.00.If the price goes to one penny you have made one hundred times your money. Your $100.00 is now $10,000.00 and your $10,000.00 is now $1,000.000.00. Yes now you have one million dollars. Does this happen? Yes it does!
Huge moves like that don’t happen every day. When a stock goes up to ten times your money it is called a ten bagger, five times a five bagger. Ten thousand dollars put into a ten bagger is one hundred thousand dollars put that into another ten bagger and you have a million dollars. you would still have a million even starting with a thousand dollars if you had three ten baggers in a row instead of two in the previous example
This is not to say you can’t loose money. You can! These are just examples to open your mind to the power of super leverage. The beauty of trading penny stocks is you can work from home or from anywhere that has a internet connection. All you need is a computer( I use a laptop), a internet connection, a on-line broker and some money to start. How much do you need to start? It depends on your situation. Don’t risk more than you are willing to loose. Start out small until you have gained some experience.
The people that I see that make the really big money in penny stocks have a considerable amount of money that they are trading with. The old saying, “it takes money to make money” is true. It is all about liquidity. These stocks are so volatile the only way to play them is trade them. When you start with a small amount of money in your trading account, it is very easy to get wiped out to nothing. It’s happened to me more times then I want to admit.
After getting wiped out but seeing that penny stocks have the very real potential of making millions I started looking for a way to generate a large amount of money to trade with. I found an online marketing business that I am using to create the trading capital I need. It is a perfect complement to trading penny stocks as it gives me the liquidity I need to trade penny stocks.