What is the Definition of Penny Stocks?

December 21, 2009 · Posted in Stock Market 

Penny stocks are shares offered by small and medium sized companies and usually cost less than $5 per stock. There are conflicting definitions where you find that some people believe they are shares sold at less than $1 per dollar. They are not traded in the stock exchange. Instead, they are traded by quotation which is an easier method of stock trading where you buy them over the counter. A Penny stock is a high return stock but often are highly tentative, since just as the profitability rate is high, so is the risk. They are traded in over the counter markets like the NASDAQ National Market and the National Quotation Bureaus, and “Pink Sheets”, which is named after the papers they use to list the shares.

Where Do Penny Stocks Come From?

Companies that don’t trade in the major stock exchange can still trade in penny. As a result, most companies that don’t have a wide market capitalization opt to offer penny stocks. At the same time, there are companies that are listed in the major stock exchanges which still offer them. Although companies that don’t have a wide market capitalization can still offer penny, the market capitalization is considered before a company is allowed to offer them. Many companies make volumes of profits from stock trading in high return stocks.

Penny Stocks Prices

Some high yield stocks are listed as penny stocks only when being introduced, and thereafter their values shoot and defy the definition of what they are. This is due to the capability of them yielding up to over 50% in profits. Since penny stocks are short term trades, one has to amass as much knowledge as possible to enable them to make lots of profits and avoid losses, unless inevitable. The information acquired should be as accurate as possible. While trading, they mostly have four different prices which are the bid price, which is how much the customer is offering as consideration, and the asking price, which is how much the share is trading for. There is also the spread which is the difference between the asking price and the bid price.

Penny Stock Agents/Brokers

In many of the penny stocks transactions, the broker or the agent acts as the middleman between the customer and the third-party. The broker benefits from commissions paid to them by customers once a transaction is finalized.

Author: Gilbert Stockton
Article Source: EzineArticles.com
Provided by: Duty on LCD/Plasma TV

Tags: , , , , , , , , , , ,

Comments

Leave a Reply




Powered by Yahoo! Answers