Posted on 22 August 2012.
Testing new investment strategies offers a feeling of excitement and trading over the counter penny stocks certainly fits the bill. Before you begin working with penny stocks, there are several important concepts and facts you should understand. Penny stocks represent one of the most volatile investment strategies on the market and planning a strategy can help you minimize some of the risk.
Generally, small companies issue penny stocks and while a firm definition of “penny stock” does not exist, typically, stocks that cost less than one dollar and up to five dollars fall within this category.
Companies that issue the stock are unable to meet the regulations and requirements that would allow the company to issue stock over the stock exchange. Consequently, the lack of close regulation and monitoring makes the stocks volatile and vulnerable to manipulation schemes. In addition, you cannot trade the stocks using traditional methods. As a result, over-the-counter trading makes an entrance.
Penny stocks do not meet the stock exchange listing requirements. Companies trade their stock over the OTC Bulletin Board, which in the United States acts as a vehicle for trading over the counter penny stocks. Consequently, broker-dealers perform the negotiations with each other to complete the process using the OTC Bulletin Board.
In order to begin trading, you must find a broker, since the broker-dealer will communicate with others to execute the transaction. Once you locate a broker-dealer, you can begin researching the appropriate penny stocks. Keep in mind that some companies list on the OTC Bulletin Board because the stock exchange de-listed them. Make sure you perform an appropriate amount of research prior to investing in these volatile stocks.
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