Most stock investors, especially those who do not have big amount of money as capital, prefer to invest in penny stocks. Penny stocks, or also known s cheap stocks or nano stocks, are those stocks that are sold at less than $5 per share. Thus, owning plenty of shares becomes possibly for most stock investors, because they do not need to have big capital for such. However, penny stocks are believed to be much riskier to invest into, as these stocks are not sold in major stock markets just like to regular stocks. Most of the time, penny stocks are listed in over-the-counter markets and pink sheet markets. And because the stocks that are listed in pink sheet markets do not need to file their financial reports with Securities and Exchange Commission (SEC), they are rather riskier to buy.
How to buy penny stocks?
Most of us are wondering how to buy penny stocks. Buying penny stocks is more or less the same as buying stocks from the regular stock market. We will need to hire a stock broker who will help us process the purchase transaction. Moreover, there are some brokers who also offer financial and investing advice and stock buying guide for those individuals who do not know how to buy stocks properly.
Two major ways in buying penny stocks are through a discount brokerage or full service brokerage. Using a full service brokerage is ideal for those investors who are not very confident in how to choose the best penny stocks to buy; but they are generally more expensive. The discount brokers, on the other hand, are recommended for those investors who are knowledgeable about this kind of investments — and since discount brokers are cheap, investors may be able to save a lot on investment costs and expenses when they hire such brokers.
Which penny stocks to buy?
So when an investor finally decides to use a discount broker, he must be aware that he will be the one to choose which types of penny stocks to buy, and he must always practice extra caution with this. Finding the hottest penny stocks to watch and buy is not that easy, but is worth the effort and the challenge.
First of all, the investors need to analyze the balance sheets and income statements of each penny stock, if such information are available. Making sure the revenues of these stocks for the last three years are increasing is really critical, as some of these stocks may have more debt than revenue.
The investors also need to spend time and effort to research about the underlying business plan and products or services for each penny stock. There are some penny stocks that may boast a great new product or service but have no clear business plan, which may prohibit the stock’s future growth. Then of course, the investors need to be observant with the industry on which this penny stock company belongs to in order to determine whether or not there will be growth for such industry.
And lastly, the investors need to visit the online forums and customer reviews on certain penny stocks; and take notes of those which are generating positive feedbacks from other investors. This is one of the most common yet important things about the stock market for beginners to understand and do.