The Penny Stock Market

Penny shares refer to extremely low cost stocks. Penny shares usually sell for less than $5 per share, and are either potentially about to be removed from the major stock exchanges due to low share price, or are already being traded over the counter (OTC), such as those on the OTC Bulletin Board. Many new investors get enthusiastic about stocks because they hear about exciting penny share picks, suddenly imaging a world where they can hit it big with the next Intel or Apple. The truth is that trading in penny shares can be very exciting, if sometimes very costly.



Most stocks on the OTC market are there because they cannot meet the stringent financial requirements of the NASDAQ and NYSE. Sometimes, a company elects to begin selling stock OTC, likely because they cannot meet these more rigorous requirements of the common markets, or because they do not want to go through all of the paper work and transparency that is required of NASDAQ and NYSE stock companies. Other companies begin on the NSADAQ or NYSE, but encounter problems in finances or paperwork that result in them being removed from these exchanges.

For the reasons already mentioned, penny stocks are among the most volatile of stocks. Their performance is unpredictable, the companies often unstable, and information on the companies sometimes difficult to find. That being said, at such low prices, penny shares are still very interesting, and very attractive; even if companies are on the penny exchanges because they are having financial trouble, that does not necessarily mean that things are not going to get better for them, at which point their stock prices could skyrocket.

Let us look at one example of a penny stock that made it big. In late 2008, all of the major American care companies were suffering. Ford stock had fallen severely, and was selling at $1.58 a share - deep into penny stock range. However, within just over a year, the stock price jumped, exceeding $12.00 a share. That means, had you invested $5,000 into Ford in November of 2008, you would have bought over 3,000 shares, which would have been worth almost $38,000 just 14 months later. That would have been quite some haul for just over 12 months investment!

Of course, some penny stocks never make it out of the penny stock market - the company may even go bankrupt, the stock becoming worthless. But as with anything worthwhile in life, with the potential gains come great risk. Risk aside, trading in penny stocks is still exciting, and potentially lucrative.

So, if you are ready to take a break from the 9 to 5 grind, consider a jump into the exciting universe of penny shares. While you might find a few lumps of coal, you never know when you might strike it rich, making your entire retirement savings with one minor investment!