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Penny stocks are share offerings available to investors by companies that are too new or small to be offered with the dominant stock exchanges. These offer significant growth possibilities, and your initial purchase can be rather small, however you also stand the risk of the organization becoming shut down and you dropping your money. The attraction to these types of stocks due to the case that even though they face risks you can see huge payoffs.

Picking Out penny shares reasonably means that you need to have an independent overview of the business's business model. Similar to purchasing shares of any other sort of publicly traded business, it's necessary to investigate everything about the company. That relates to understanding what the organization do, the product they make, what products are offered, how their business plan functions and who they are competing with.

It is unusual that the companies that offer these types of shares have complex companies - usually they are simple to understand and analyze. A typical kind of penny stock is a mining business that profits when the cost of the material it produces increases above a specific level. There are also oil extraction stocks that are valued in a similar way.

Penny stocks are considered a high risk vehicle, according to the many bankers. The risks you take on with these stocks include indirect and incomplete reporting of financial information, low liquidity and even fraud.

Keep in mind that the reporting guidelines for penny stocks aren't typically as tight as stocks on bigger exchanges. One of the sorts of penny stocks is called a "pink sheet" and has almost no regulation when it comes to their reporting and financial accounting standards.

Because there's very little or even no regulation, this renders this sort of share susceptible to fraud and dishonest trading. A well known common schemes is know as a "pump and dump" - here there are people manipulating the price of shares to rise drastically and then get rid of all of their shares in one transaction and leave other people out big money.

However, we don't want to scare you off! Penny stocks have their risks but also have a sizeable potential for a large gain. You can find scores of real, honest small businesses, and they have tons of potential. Tons of companies that are listed as penny stocks are going to be a great success in the future. If you are able to pick out one of these businesses, your return on your investment will be hefty.

If you are able to spot out companies that have promise, your payout are going to be huge. Even if you suffer a loss on most of your penny share selections, finding one one successful stock will be such a big gain that you'll forget about the picks that didn't work.

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1 comments

George S said... @ November 5, 2009 at 9:12 AM

Interesting post... I can see that you put a lot of hard work on your blog. I'm sure I'd visit here more often. George from to make money by.

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