Any stock which is valued less than $5 is referred to as penny stocks. While these are risky to trade and highly speculative, these are good for beginners because of its low and affordable value. While these are not available at major stock exchanges like NYSE and NASDAQ, they are sold by a method known as over the counter. As you have seen, penny stock values are really low and you could get such stocks in the market for a few cents.
Penny stocks are mostly recommended for those who are just about trying their hand and luck in share market investments. Though these are high risk stocks, even when the beginner loses money, the amount is still small. Of course all penny stocks available in the market carry the same amount of risk. There is provision for making small profits with penny stocks, but then, you should not dream of becoming very rich with these investments.
The best way to buy penny stocks is to go through a broker. Firstly, you have to evince interest through a letter clarifying your interest in buying such stocks. This is a stipulation from SEC (Securities and Exchange Commission of United States), promulgated essentially to protect the interest of the investor. The first step to buy these stocks is that you must be in agreement with the broker about the provision as well as the market rate of the stocks at the time of purchase.
In case you are interested in buying some penny stocks from the market ask your broker to give his unbiased opinion about them. Even your broker can give you his recommendations for some of the penny stocks available in the market. It is also advisable that you frankly communicate with your broker in such matters as it is in your best interest to do so. After you have purchased the penny stocks through the broker, he is obliged to give you monthly statements to you regarding the status of your stocks.
While the broker can be your best friend regarding giving professional advice on the purchase of penny stocks, how do you get a good broker in the first place? The best source is the SEC division of your state which gives you updated information about the various rating of brokers. This information can give you valuable insight into the number of licensed brokers available as well as information on any disciplinary action taken against a broker.
It is important to note that all brokerage firms are members of have SIPC (Securities Investor Protection Corporation). This is of particular significance as if any investor goes bankrupt, then the money can be recovered from SIPC. This can also be looked as insurance for the investment that you make. Thus, if you are interested to buy penny stocks through a broker, it is essential that you ensure that the broker is insured through SIPC.
Like any other stock investment business, investing in penny stocks also carries equal amount of risk, except that the quantum of losses, if incurred, would be less. Since the amount of loss is not high, it is a good way to learn the tips and tricks of the stock trading market.
