Finance Spirit

Investing in penny stocks can be a great option for short term investors and day traders. However, before diving into penny stocks, be sure that you have a basic understanding of how the market works.

Penny Stocks and Day Trading

A penny stock is defined as a stock that trades for less than $5 per share. Typically, Penny Stock companies have less than a few million dollars in assets and a very short operating history. The stocks are not traded through the three exchanges- AMEX, NYSE or NASDAQ, but rather over- the-counter through a quotation service such as the Pink Sheets or OTC Bulletin Board.

Day traders are those who buy and sell stocks within the same trading session making their profit on the price fluctuations that occur during the day.

Many short-term investors like penny stocks because of their enormous potential for immediate growth. However, as with investing in any type of security, information is vital to the success. Finding actionable and accurate data on penny stock companies can sometimes be extremely difficult to find.

Penny stocks are often looked down upon or completely dismissed by investors because of the historic fraud and manipulation associated with the over-the-counter market. One should keep in mind that there is fraud in every aspect of the investing world. Would it make sense to dismiss hedge funds altogether because of the recent fraud and ponzi scandals that are being covered in the media? Of course not. Penny stocks are as good of an investment as any in today’s market. The investor that exercises patience in addition to performing due diligence is in the best position to succeed as well as avoid scams.

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