Get in on the Financial Action

Have you ever wanted to play the stock market and get in on the financial action like the big guys? Something called penny stocks may be the way to go for you.

The financial world and the SEC essentially agree that penny socks are common stocks that trade for under five dollars per share. They are speculative securities issued by small companies. These stocks typically do not trade on the major stock exchanges like the New York Stock Exchange and the NASDAQ, but rather on the OTC, OTC Bulletin Board and the Pink Sheets.

Let’s talk about the benefits of these stocks first, keeping in mind that there is a distinct downside which we are going to warn you about shortly. Let’s pretend a penny stock is selling for ten cents. You can buy a thousand shares for one hundred dollars, which is relatively cheap. If the underlying company gets a big order for its products, the stock may rise to fifty cents in one day, giving you a five hundred percent gain. It’s hard to do that with a stock selling for forty dollars.

There are well researched and unbiased news letters out there that deal only with penny stocks and they can provide you with good information that you can rely on to pick a winner. You don’t need to start with a big investment, and you can play with what you can afford to lose without jeopardizing your next mortgage payment.

Every once in a while a penny stock develops into a major company and you end up holding a dividend -paying stock that’s listed on the New York Stock Exchange. All you need to know is when to hold on, which is not easy. If you win on a stock, capital gains taxes have not been lower in a decade.

Now the tricky part… Many times it is hard to get much general information about these companies, and legitimate information may be even harder to come by. This is not like buying Google where its financial report cards appear almost every day in the business papers. Instead, not much is really known about these companies and you need to dig to get real and honest information.

Remember… never, ever buy a penny stock without doing your due diligence. These stocks are subject to very little regulation. The only requirement of any substance is that they file an annual report with the SEC on time, laying out their profits and losses, assets and liabilities.

Minimum accounting standards are not mandated for these stocks, making it difficult to know if these companies have the wherewithal to succeed in the long term. You will rarely be notified by Bloomberg or any other financial news organization when there is a change in ownership or officers. If the majority owners are selling their shares that is not a good sign, and you will be in the dark.

Often times there can be a lack of liquidity or a lack of shares that are available for sale and purchase. This can lead to situations where for hours or days there are no buyers to take these shares off your hands.

What may look like the opportunity for a good profit may in fact be a mirage if no one is around to purchase your stock at the last bid and ask. These stocks can rapidly go up on good news broadcast over the public airwaves, but they can decline a whole lot faster in reaction to negative news or manipulators who have pumped the stock up through phony news reports and who are now looking to sell all at one time and make a profit.

Don’t ever forget, the whole game comes down every time to the laws of supply and demand. The most notorious problem is the tactic of, “pumping and dumping.” In this ploy, a few investors get together and buy a large chunk of shares at a low price.

Within days or weeks, they send out spurious news releases, fraudulent internet and blog messages, and postings on electronic trading sites to the effect that the company has received a huge order for its product or other good news. Investors flood the market, driving prices up, and then these manipulators quickly sell for a large and quick profit.

The alleged good news then turns out to be patently untrue, or only a hope and a prayer, and the stock sinks like a lead balloon and you are left holding shares with little or no value. There are alternatives to buying strictly defined penny stocks and these may be for you.

Small cap and microcap stocks are out there which only sell for maybe a dollar but you get all the advantages as if you owned Google: relevant and audited financial statements; conference calls between the executives and investors in the company, and genuine press release issued by the company and its accountants.

You can look at audited balance sheets and see how the company has fared in the last few weeks, and you can take a look at how much the CEO and other top executives have actually invested in these companies.

Penny stocks can make you money or you can lose all your pennies. It’s up to you, now that you know some of the ins and outs. For more information on penny stocks, visit pennystocksmicroblog.com and stockmarketmicroblog.com

Article Source:http://www.articlesbase.com/investing-articles/get-in-on-the-financial-action-825037.html