Helping You Buy Penny Stocks

Investors know that any stock that is valued under $5 are known as microcap stocks / penny stocks. A better definition of penny stocks should have reference to market capitalization for a company instead of just having a value/price. To calculate the market capitalization of any company is not to advance. All that is needed is for you to take the amount of shares that are issued by a company and multiply that by the price of the stock.

For example if a company has 10 million shares and goes for $2 a share then the market capitalization is 10 million X 2 which is 20 million. By using this number you will be able to determine the size of the company. Now with penny stocks the requirements for exchanges are usually over the counter/OTC. Most of these stocks are traded through a broker who arranges the buying or selling trades from the investor and the seller, you and the company.

With these penny stock trades your broker makes an income from principle transactions. In other words they make money from the price spread and not from a commission on the trade. It is important to remember that penny stocks are not at a fixed price but rather different prices. The difference between the asking and bidding price that is labeled the spread. You may wonder what the spread of penny stocks look like. The penny stocks fluctuate as would be expected.

The variation is between 25%-34% and sometimes can go higher. There are basically 2 types of asking and bidding prices- inside asking/bidding prices and outside asking/bidding prices. For an investor the outside bidding/asking price is extremely useful. It is best to not forget that penny stocks can also be marked up due to the broker holding shares of stock on his account and in turn take the risk from big price changes.

Yes it is common for people at this point to say why is this so confusing? You might even have heard of some stories associated with problems when trading these stocks resulting in millions being lost. So then why do these companies still have penny stocks? And why do investors still trade? The answer is that companies want to get more working capital, as much as possible which will help them address any cash flow needs they may have, especially if they are struggling to rise up from the ground. Investors still trade these penny stocks because of one reason, huge profits.

With penny stocks you can make a killing in the market and come out with a large profit and at the same time you can completely lose everything and have an extreme loss. What makes it best for you is that your broker profits when you profit so he will have your best interest in mind. He will be your guide in the dark and will help you come out on top of the game while trading these penny stocks. Remember a business is only a business if the existence of profit and loss both exists.

What is the easiest way to trade penny stocks:

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