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Oh boy, a penny stock chat... oh what fun.
Let's first start off with identifying the difference between a penny stock and a stock traded on the open markets.
(geeze, I should write a book on this, in fact, many have been written)
Penny stock is a stock that is traded on what is known as a pink slip, Bulletin Board, or "Over The Counter". Typically, these are companies that are just starting out and growing. Sometimes they are companies that could not for one reason or antoher maintain the strict requirements that the SEC or each major market has set upon them. This could be due to the nature of the company, the success of the company or the non-success of a the company.
There are a few companies are not traded on the market because their dollar value per share is too expensive and the market is not of much help to their growth, but they still trade over the counter so they can get premium buyers. So just because someone calls it a penny stock does not mean it is cheap, it can also be really expensive. The highest one I have seen was going for $9000 per share.
The companies that are traded on the open market meet all the criteria of the SEC and the market exchange for which they are traded in. Because these companies run with tight restrictions, they are easily regulated and highly visible in the market to every day people like you and me. For this reason alone they can provide you with a safer and more secure investment solution. Without these security protocols for them to go through, we would have a hard time collecting enough information on them to be a low risk investment. This is why penny stocks are considered a higher risk investment.
Yes, you can get into a penny stock that is traded on pink, bulletin board, or OTC, and make a huge profit. This is because of the leverage, (see my document on Leverage in the site library). The down side, is that you have to typically call in an order that is traded on Pink, OTC, or Bulletin Board, thus the name "Over The Counter". Some brokers will allow you to trade them through their online systems, but I would not count on it much. There is an additional cost involved in buying these stocsk as well. In addition, you may decide to sell the stock at one price, but because of the process of the selling it may take longer than the automated systems and you will lose some money during the sell process.
Many of these stocks do not have public information or limited at best. The best way to learn how to obtain this information is to buy some books on Penny Stock Investing and learn what the pro's use. Keep in mind, that in my opinion, penny stock investing is not for a rookie. You need to know what you are doing, be prepared to do a lot of your own fundamental analysis on the stock and be prepared to lose a lot of money while learning the ropes.
It is possible to trade stocks that are not on Pink, Bulletin Board, or OTC without having to go through much of the headaches. Simply look for stocks that are priced between $1.00 and $5.00 per share that is not marked as Pink, Bulletin Board, or OTC. Some broker programs will provide this information to you and it is located different based on the broker, so contact your broker to figure out how they denote stocks on these trade markets.
P.S. If you are really interested in Penny stock investing, I would recommend that you get used to the idea of going door to door on every business you see and ask them if you can invest in their company. You may have better luck than penny stock investing. The riches are high for those who know how to play it, but a really bad long shot gamble for those who do not.
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