Ultimate Guide to Investing and Trading Penny Stocks

Successful companies aren't born, they're made and they have to work their way from humble beginnings and through the ranks just like everyone else. Unfortunately, some investors believe that finding the next "big thing" means scouring through penny stocks in the hope of finding the next Microsoft or Wal-Mart. Unfortunately, this strategy will prove to be unsuccessful in most cases. Read on to find out why pinning your hopes on penny stocks could leave you penniless
Penny Stocks 101
The terms "penny stocks" and "micro-cap stocks" can be used interchangeably. Technically, micro-cap stocks are classified as such based on their market capitalizations, while penny stocks are looked at in terms of their price. Definitions vary, but in general, a stock with a market capitalization between $50 and $300 million is a micro cap. (Less than $50 million is a nano-cap.) According to the Securities & Exchange Commission (SEC), any stock under $5 is a penny stock. Again, definitions can vary; some set the cut-off point at $3, while others consider only those stocks trading at less than $1 to be a penny stock. We consider any stock that is trading on the pink sheets or over-the-counter bulletin board (OTCBB) to be a penny stock.


The main thing you have to know about penny/micro stocks is that they are much riskier than regular stocks.