In this series of stock market tutorials I am going to teach you everything you need to know about penny stocks.
Stock market tutorials - penny stocks There are two terms that can be used to describe these kinds of stocks, they are penny stocks and micro cap stocks.
the difference between the two is that micro caps are based on the market capitalization of the company they belong too while penny stocks are based on price.
A stock with a market capitalization of between $100 - 300 million is a micro cap and a one under $5 is a penny stock.
Also note that a stock that trades on the pink sheets or on an over the counter bulletin board is a penny stock.
The most important thing that you should take away from these stock market tutorials is that trading penny stock is extremely risky.
There are many reasons for this but the most important are.
Lack of information - making informed decisions is the most important component of any investment strategy.
Finding information about these shares is difficult to find and not very credible, additionally many of the companies that trade on the above mentioned pink sheets are not required to file with the SEC.
This means that they are not as regulated as the shares on the NYSE or Nasdaq.
Lack of standards - These shares are often sold on markets (such as pink sheets or bulletin boards) that are not required to fulfill minimum standards.
These standards act as a safeguard for investors and if they are absent your risk is greatly increased.
Lack of historical data - the vast majority of penny and micro cap stocks are from companies that are new or about to go bankrupt.
Because of this there is little or no historical data or track record of the company; this makes it difficult to determine the stocks worth and potential.
This wraps up the first part of these stock market tutorials.
In part two I will be telling you about the various scams involving these stocks.