The age of technology has drastically changed how an ordinary Joe-on-the-street views stocks, stock trading, and investing in general. Your grandpa would have sworn by his stock broker's word. But no more. Why pay those outlandish fees, when we can get a quick on-line account, take a few on-line stock trading courses and trade on our own - online? And at 2 am in our jammies if we prefer!
That Was Then; This Is Now
It's only natural that the popularity of the low cost, fairly easy-to-purchase penny stocks would become enormously popular for those of us with normal-sized bank accounts. Consider these statistics:
In 1994, the Over-the-Counter Bulletin Board (OTCBB) traded a total of 3.02 billion shares. That was less than five percent of the total shares traded on the Nasdaq and New York Stock Exchange.
Fast forward to 2003! Now the annual OTCBB volume had skyrocked to 267.4 billion shares. Folks, that equals an amazing 8900% increase. That's what happens when information gets into the hands of the common people!
The difference in penny stocks, however, lies in dollar amounts. The average price per share in daily dollar volume in 2003 for OTCBB comes to about $.0.15 per share. The average price per share in daily dollar volume for the NASDAQ for 2003 averages close to $27.50.
Now you know why they are called penny stocks. It's just a nickname for lower priced stocks that haven't grown up enough to get on the big boards. On the other hand, they could be a bigger company going bankrupt.
Define Penny Stocks For Me
There's no real official definition for Penny Stock, but we can look at a few criteria.
The Price Per Share. Obviously this is going to be small. The SEC considers all stocks that trade for less than $5.00 per share to be penny stock. Most savvy traders you talk to prefer to keep their definition at less than $2.00 per share.
Bottom line, what is and is not considered a penny stock may depend on who you ask. The most reliable definition is that penny stocks are high risk, high reward investments. They are very volatile and unpredictable. And therefore, should be treated as such. There is a lot of money to be made in this market. But always remember - it's just as easy to lose. Let education be your first step.
Where They Trade.
Few would dispute that those stock traded through the OTCBB (or the OTC), or the Pink Sheets or the CDNX (Canadian Venture Exchange), are treated as, or considered to be, penny stocks.
Market Capitalization.
Market cap is simply the total trading value of the entire company. The value of each share of a stock, multiplied by the total number of shares outstanding, equals the market cap. For example, 15,795,000 shares of XYZ at $0.27 each, gives XYZ a market cap of $4,264,650.00. (That is kind of like saying that the company's total value is 4.5 million dollars.) In some cases, companies beneath a certain market cap (for example, less than $10 million) might be ranked, or considered, as a penny stock.
What are Pink Sheets?
First of all, it has nothing to do with what's in your linen closet. Pink Sheets were named for the color of paper the quotes were printed on prior to the electronic systems that we have today - around 1904 actually. A company named Pink Sheets, LLC (it used to be the National Quotation Bureau) publishes these info sheets in both hard copy and electronic format. (This company is not listed with the SEC nor are they regulated by the SEC.) This is like control central for following penny stocks.
The operation is much different than the big boards. Pink Sheets are created by market makers who work with individual stocks. They specialize in these individual stocks and their purpose is to keep the market fluid. In fact, they buy and sell out of their own account depending on what individual investors want or need. Essentially they maintain an ask or bid price, keeping the liquidity of a security intact.
Gains and Losses
Because of the low cost of penny stocks, the possibility of doubling your investment can be pretty high. I highly doubt that investors with stocks in General Electric and Wal-Mart are looking to double their money. In fact, they would be extremely happy to make a 10% return yearly. Penny stocks, on the other hand make their gains by the hundreds of percentages, and thousands, not by the tens. (Sounds pretty exciting, right?)
Keep in mind that the visibility of information and even the accessibility of operational results, is usually pretty dismal for penny stocks. The companies will have minimal revenues, unproven management, and often an unproven product or industry. On the other hand, there are OTC stocks that will go to great lengths to let the public know their every move. These are the exception rather than the rule.
If you like the lure and excitement of highly speculative trades, spend time familiarizing yourself with the terms and ebb and flow of penny stock trading. Then don't be afraid to jump in.
Look for my companion articles for more valuable information about penny stocks.
I've been dabbling in penny stocks for a few years, educating myself in bits and pieces. The other day I got a call from one of my old frat brothers saying he too was researching penny stocks online. In his search, he ran across a crazy story about two geeks who have created a computer robot that does all the analysis work. They locked themselves in a room with 12 computers all running at once to test the system. (Shades of college-age Bill Gates.) The results are staggering. Winning picks right and left. See what you think. These two guys are so sold on their product they are giving people $100 trading cash! (Oh yeah, they named the robot, Marl!)
That Was Then; This Is Now
It's only natural that the popularity of the low cost, fairly easy-to-purchase penny stocks would become enormously popular for those of us with normal-sized bank accounts. Consider these statistics:
In 1994, the Over-the-Counter Bulletin Board (OTCBB) traded a total of 3.02 billion shares. That was less than five percent of the total shares traded on the Nasdaq and New York Stock Exchange.
Fast forward to 2003! Now the annual OTCBB volume had skyrocked to 267.4 billion shares. Folks, that equals an amazing 8900% increase. That's what happens when information gets into the hands of the common people!
The difference in penny stocks, however, lies in dollar amounts. The average price per share in daily dollar volume in 2003 for OTCBB comes to about $.0.15 per share. The average price per share in daily dollar volume for the NASDAQ for 2003 averages close to $27.50.
Now you know why they are called penny stocks. It's just a nickname for lower priced stocks that haven't grown up enough to get on the big boards. On the other hand, they could be a bigger company going bankrupt.
Define Penny Stocks For Me
There's no real official definition for Penny Stock, but we can look at a few criteria.
The Price Per Share. Obviously this is going to be small. The SEC considers all stocks that trade for less than $5.00 per share to be penny stock. Most savvy traders you talk to prefer to keep their definition at less than $2.00 per share.
Bottom line, what is and is not considered a penny stock may depend on who you ask. The most reliable definition is that penny stocks are high risk, high reward investments. They are very volatile and unpredictable. And therefore, should be treated as such. There is a lot of money to be made in this market. But always remember - it's just as easy to lose. Let education be your first step.
Where They Trade.
Few would dispute that those stock traded through the OTCBB (or the OTC), or the Pink Sheets or the CDNX (Canadian Venture Exchange), are treated as, or considered to be, penny stocks.
Market Capitalization.
Market cap is simply the total trading value of the entire company. The value of each share of a stock, multiplied by the total number of shares outstanding, equals the market cap. For example, 15,795,000 shares of XYZ at $0.27 each, gives XYZ a market cap of $4,264,650.00. (That is kind of like saying that the company's total value is 4.5 million dollars.) In some cases, companies beneath a certain market cap (for example, less than $10 million) might be ranked, or considered, as a penny stock.
What are Pink Sheets?
First of all, it has nothing to do with what's in your linen closet. Pink Sheets were named for the color of paper the quotes were printed on prior to the electronic systems that we have today - around 1904 actually. A company named Pink Sheets, LLC (it used to be the National Quotation Bureau) publishes these info sheets in both hard copy and electronic format. (This company is not listed with the SEC nor are they regulated by the SEC.) This is like control central for following penny stocks.
The operation is much different than the big boards. Pink Sheets are created by market makers who work with individual stocks. They specialize in these individual stocks and their purpose is to keep the market fluid. In fact, they buy and sell out of their own account depending on what individual investors want or need. Essentially they maintain an ask or bid price, keeping the liquidity of a security intact.
Gains and Losses
Because of the low cost of penny stocks, the possibility of doubling your investment can be pretty high. I highly doubt that investors with stocks in General Electric and Wal-Mart are looking to double their money. In fact, they would be extremely happy to make a 10% return yearly. Penny stocks, on the other hand make their gains by the hundreds of percentages, and thousands, not by the tens. (Sounds pretty exciting, right?)
Keep in mind that the visibility of information and even the accessibility of operational results, is usually pretty dismal for penny stocks. The companies will have minimal revenues, unproven management, and often an unproven product or industry. On the other hand, there are OTC stocks that will go to great lengths to let the public know their every move. These are the exception rather than the rule.
If you like the lure and excitement of highly speculative trades, spend time familiarizing yourself with the terms and ebb and flow of penny stock trading. Then don't be afraid to jump in.
Look for my companion articles for more valuable information about penny stocks.
I've been dabbling in penny stocks for a few years, educating myself in bits and pieces. The other day I got a call from one of my old frat brothers saying he too was researching penny stocks online. In his search, he ran across a crazy story about two geeks who have created a computer robot that does all the analysis work. They locked themselves in a room with 12 computers all running at once to test the system. (Shades of college-age Bill Gates.) The results are staggering. Winning picks right and left. See what you think. These two guys are so sold on their product they are giving people $100 trading cash! (Oh yeah, they named the robot, Marl!)
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