penny stock investing

Even though the name implies what penny stock investing is all about, there is no rock-solid definition available.

Common definitions are based on per share values, market capitalization, and the penny stock definition may be based on the market the share trades on.

The same rules of valuing companies apply to penny stocks as do for companies not defined as penny stock companies.

However, penny stocks are considered very volatile stocks, which has made some investors to use options-based pricing models to value them.

Thus, to the speculative value of penny stocks is also added the fact that analyst coverage and overall visibility may be poor for these companies, as well as accessibility of operational results may be sub-standard.

The SEC considers penny stocks to include only those issues trading on the OTC Bulletin Board or the Pink Sheets, but not on national markets (such as NASDAQ or NYSE).

The marketplace for penny stocks function as does the marketplace for other stocks.

However, because you have to buy high number of stocks (in relation to more normally priced stocks), fees associated with penny stock investing may be relatively high, which should be taken into account when back-testing your trading strategy with penny stocks.

Penny Stock Investing - Resources

Much of the resources on penny stocks have to do with different strategies and valuation models.

There are companies offering to educate on their particular approach for a fee.

There are a lot of tip giving sites as well as sites for rumors and discussion on penny stocks.

Because of the available different definitions for a penny stock, there are many criteria the online sites use on their approach.

For example, some use a $5 dollar per share upper limit to describe penny stocks, while other resources may use a $2 dollar per share upper limit.

Many use the $5 dollar limit definition because that is one threshold Securities and Exchange Commission refers to (at sec.gov/answers/penny.htm).

In fact, the SEC web site is a great resource on penny stock regulations governing the transactions and broker-dealer requirements.

Other resources include: