Penny stocks are share offerings available to investors by organizations that are too tiny or new to be offered with the major stock exchanges.
Many investors are attracted to these shares since they require only a small initial investment, but keep in mind that there can be a high risk of the share value decreasing to zero.
Although there are definitely risks inherent with these types of shares, there's also a large potential for sizable profits.
Picking Out penny shares correctly means that you must have an unbiased assessment of the organization's business model.
Just like investing in other stocks, you are going to need to understand the type of business they are involved with and what business plans they have for the future.
It's unusual that the organizations that issue these types of shares have complex businesses - likely they are simple to understand and research.
A common sort of penny share is a resource company that increases earnings when the cost of the resource it extracts increases above a certain level.
There are also some oil exploration stocks that are valued in a similar way.
Penny stocks are believed to be a high risk investment, according to the SEC.
Regrettably there's always the risk that the organization won't make it even with adequate research.
The financial reporting guidelines on penny stocks are not as stringent as they are for shares found on the national exchanges.
One of the types of penny stocks is referred to as a "pink sheet" and has almost no regulation in regards to to their reporting and financial accounting standards.
Because there's very little or even no regulation or standards, this makes this sort of stock open to fraud and dishonest reporting.
Fraudsters will use their influence to jump work up penny share prices, then they'll unload and delist the stock.
This is a well known con referred to as "pump and dump".
Don't let the above scare you off these types of stocks! Penny stocks certainly have risks but also hold a large potential for a large profit.
You can find scores of real, honest small organizations, and they have tons of potential.
Tons of organizations that are looked to as penny stocks are going to be successful in the oncoming future.
Investors who can spot out a winner will get a generous profit.
It's important to remember that choosing the right penny stock will give some sizable returns.
Even if you were to suffer a loss on the majority of your penny share picks, the one successful stock will give you such a large profit that you'll not remember about the ones that didn't work.