Penny Stocks

Posts Tagged ‘penny stocks 2009’

Stock brokers play a key role in propelling trading volumes of penny stocks, as in the major stocks. They offer the required market intelligence to inspire confidence in the potential buyers of the penny stocks besides safeguarding their existing clients against any possible market manipulation by the vested interests. So on the one hand, these brokers play a significant role in steering the markets along the intended path of orderliness and discipline to maintain the wider investor confidence. On the other hand, they also bring in dynamism by facilitating transactions undertaken on their account by other investors.

These brokers charge their clients for allowing them to conduct transaction on their accounts. In addition, they also charge for advice provided by them to their clients in undertaking transactions. Clients may be separately charged by these brokers for availing of other services like news letters published by the latter. Alternatively, brokers can also package their services variously to pitch at the different categories of investors.

These brokers also act as a one-stop shop for the buyers and sellers of the penny stocks. Since they maintain all year an updated database of the whole range of penny stocks being traded on the pink sheets, over-the-counter bulleting board (OTCBB), and exchanges, a potential investor can easily make a balanced choice in selection of his penny stocks.

That apart, these brokers are plugged into almost all the possible sources of information on the related companies, they are at vantage point to foresee potential market risks that could otherwise dearly cost gullible investors. So paying a portion of your income made from penny stock trading to these brokers might well be worth it because they can see for you what you may not be able to do yourself normally. That makes for a good investment strategy, not least in penny stocks where risks are generally loaded against an inexperienced buyer.

Stocks are generally categorized according to their market capitalization and price value by the market players. Accordingly, we hear terms like large cap stocks, medium cap stocks and small cap stocks. Shares with very small market cap (up to $100 million) and a maximum price value of up to $ 3 are called penny stocks in the market jargon. These are usually cited as the opposite of blue chip shares, which often carry a premium tag. Penny stocks are usually traded over the counter (OTC) by the brokers because they are unable to list on exchanges due to their stringent norms.

For one thing, big exchanges like the New York Stock Exchange (NYSE) and NASDAQ prefer top-of-the – line companies for listing. More so because they too are keen to feed on reputation of the companies they trade in just as the latter want to cash in on huge turnover volumes of these exchanges. Second, they also strictly enforce compliance of their norms by the listed companies, meaning that those who fail to do so are automatically de-listed. Such exchanges tend to evaluate performance record and caliber of top management of the company applying to list with them.

In contrast, penny stocks are mainly unlisted and traded outside exchanges. In other words, they are nondescript stocks with listless trading. Penny stocks mostly change hands between brokers, without getting much notice from common investors. This is because this category of stocks is supposed to be risky due to lack of key information on the concerned companies, their promoters and management. Perhaps this is the reason why these stocks are so often targeted by investment scammers.

Nevertheless, penny stocks can also turn in unexpectedly big returns if they rise on the fundamentals of the concerned company rather than any market manipulation. This is because most of the penny stocks are generally quite undervalued due to lack of market support. So, anyone who can lay his hands on the right penny stocks might reap unexpected gains some day.