Factors to consider before trading Penny Stocks
How Penny Stocks Operate
Penny stocks are stock exchange shares that are relatively cheap, ranging below $5 per share. They also have other different names such as stocks under $5, small caps, micro caps, OTC stocks, etc. Often they operate over the counter in markets without close supervision. Their popularity is due to the low entry cost; thus, many investors find them affordable.
Their issuance is common in most small companies that do not have an established interest generator. It is uncommon to find penny stocks exchange in big companies unless they are running bankrupt. They are sold at a relatively small cost by small companies since they cannot generate income from them.
Different ranks of Penny Stocks
An investor should plan well before engaging in the Penny Stocks trade to avoid incurring losses in the future. It is essential to get a detailed report about the type of Penny stock shares you intend to purchase. The details will help you in making smart decisions on the Best Penny Stocks in the market. Penny Stocks ranks according to the following four categories;
Tier 1 Penny Stocks – They are standard on significant stock exchange listings such as the New York Stock Exchange and NASDAQ. Their pricing occurs below $5 per share, and at times they can range at a higher fee. Their ability to provide financial information to the exchange makes investors rank them higher than the OTC. It makes them less open to manipulation by frauds and scammers.
Tier 2 Penny Stocks - They are the traditional penny stock with their relative range between one cent and 99 cents.
Tier 3 Penny Stock – They are sub-penny stocks trading below one penny per share. Most companies are unable to stock under this rate of exchange.
Tier 4 Penny Stocks – The type of stocks price between 0.0001 and 0.0009 cents per share; hence they are triple zero stocks. Those who buy these stocks first often benefit most as they use them as an alert of the hot penny stock.
Shortcomings of trading Penny Stocks
There are significant risks that any investor who wants to engage in Penny Stocks trading should analyze. They include;
Manipulation by frauds - Most scams will lure investors into buying Penny Stocks, which they purchase in large amounts. They provide false details about the investments that attract most investors to buy shares from them, bringing a rise to their stock. Later the scams sell their percentage, which earns them good profit leaving the investors with huge losses.
Illiquidity – It is unlikely for an investor to sell Penny Stocks without incurring losses. Stocks are less liquid; thus, most people don't like investing in them.
Volatile prices – The ability of Stock pennies to sell at a relatively low price apply to its ability to incur huge losses. An investor should prepare to make losses or big wins.
Troubled companies – Most popular companies which are not legit do not offer fair penny stock exchange due to their lack of competencies.
Lack of information sources – In Penny Stock share exchange trade, not so many investors or companies provide truthful information about the stock rate exchange. It is because they want to make profits from vulnerable investors.