investing guide

What Is The Definition of Penny Stock Investing

penny stocks

What is the definition of penny stock investing?

Well it depends who you ask. Some will tell you that stocks trading under 5 dollars a share are penny stocks, while others will say less than 1-2 dollars a share.

I agree with the 1-2 dollars a share because I have seen stocks priced between 2-5 dollars do just fine, but anything less than 2 dollars a share and I think you are gambling.

Also make sure any stock you invest in is listed in one of the major exchanges. (NYSE/NASDAQ/AMEX) DO NOT get involved with OTC and Pink Sheet stocks. You are playing a dangerous game because these stocks have very little accountability compared to stocks listed on the major exchanges.

Penny stock investing is a junior level course at least. Trading penny stocks online is very difficult and can be very risky. If you have never bought a stock in your life stay away from penny stocks. In the beginning, you may be tempted by the possible huge gains, again watch "The Boiler Room," that one lucky penny stock pick may bring.

What one may see that tempts them into purchasing a penny stock is as follows:

Lets say you have $5000 dollars to invest.

Well if a stock was selling at $50 dollars a share you could only buy 100 shares of that stock.

However, if you purchased a penny stock that sells for .50 cents a share you could buy 10,000 shares.

Why is that a huge temptation for some? Because money in the stock market is all about shares. In the above example, for every .01 cent that the $50 dollar stock goes up in price you would make 1 dollar. So if the price goes up to $50.01 you just made 1 dollar in the stock market. However, if the .50 cent stock goes up by .01 cent you just made $100 dollars. See the temptation?

However, the real truth is most penny stocks are penny stocks for a reason because they are worthless. Many simply do not go anywhere and usually go down in price, or they disappear completely. Remember, stocks go down as well as up. So for every penny that penny stock, in the above example, goes down you would lose $100 dollars.

Remember, to win in the stock market you have to be a wise investor NOT a gambler.