Buying Penny Stocks

Buying Penny Stocks is risky business and yet it can be very profitable. Huge stock market fortunes are made every day! Many of the more popular stock around were once Penny Stocks including Microsoft, Nike, and Walmart. A penny stock is a stock that is either priced for fewer than five dollars, or one-dollar stocks. Penny stocks are only traded on the over-the-counter (OTC) market. There are six steps you should take before buying penny stocks.

The first step is to get information by asking a broker for written data and recommendations on penny stock companies.

The second step is to find a good broker by doing some research about their history and their track record in investing. Also check to see if there have been any complaints made against them.

The third step is to keep good records. Ask your broker to send you a written copy of all predictions about the price of a stock and about the prospects for the company. Keep notes about each broker. Get other opinions about the stock and the company from people who should know including a banker, other stock brokers, and financial planners.

The fourth step is to use common sense. Question yourself as to why the broker is offering these to you. Remember, if something is too good to be true, it probably is.

The fifth step is to not be rush to make a purchasing decision. If there is not adequate time for you to check out each stock investment carefully, do not invest.

The final step is to satisfy any concerns or questions about any potential fraud that may be occurring with an offer that is made to you by contact state or federal securities regulators.

It is important to note that investing in penny stocks can bring you extremely good profits in a short time period but it can also result in huge losses in a short time frame also. This is due in part to the usually risks that are involved in trading as market forces operate and also due to the high number of fraudulent practices by those who are selling these kinds of stocks. Companies issuing penny stocks have no regulatory requirement to make their financial statements available to the SEC, thus adequate and pertinent information will be very difficult to come by which makes it truly hard to properly evaluate a stock.

Under normal situations investments in stock with potentially high returns over a short time frame tend to be risky, but with penny stocks this risk is greatly increased by the high level of fraud that occurs in trading these stocks. In recent times many investors have become more sophisticated and aware so there is less problems associated with these stocks. These days it is still possible to buy penny stocks and make a lot of money in the market. It is however necessary that you choose a broker wisely and employ your common sense. Remember that with big rewards there are also even bigger risks. You should also never invest more than you can afford to lose.

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