Penny Stocks

What are Penny Stocks? Why should I trade penny stocks?

Penny stocks are stocks from a company with a 'market capitalization' or market cap, of less than $1 billion. A company's market cap is a measure of its total market value. It is determined simply by multiplying the price of a share of stock by the total number of shares out in the market ('outstanding shares').

Most often, this relatively low market cap that penny stocks have is due to a low price per share (PPS for short). The price of a small-cap stock can have a wide range, therefore, depending on the outstanding shares. However, most small-caps have prices that can be measured in pennies, hence the name 'Penny Stock'.

There are even 'Sub-Penny' stocks, that trade as low as .0001 dollars. Such stocks are often referred to as 'Micro-Cap' or 'Nano-Cap', with market caps of less than 250 and 50 million dollars respectively. These terms are typically used very loosely, however.

Trading penny stocks, while inherently risky, has some unique benefits. Penny stocks are the fast movers of the stock market. While large stocks such as IBM and Microsoft lumber along like the giants that they are, penny stocks often race around like Ferraris. Think of it this way, for you to double your money in a $30 stock, it must go all the way to $60. To double that same money in a stock that is $.01, it must only gain one cent to get to $.02

How much money do I need to buy penny stock?

The amount needed to start is a highly debatable subject. The more money you have to put into a stock, the less the stock will need to increase in price before you have covered the costs of commissions and realized a profit. On the other hand, more money in a stock means you have more money at risk. When you are ready to start trading, however, we recommend having at least $500 for each stock you wish to invest in. If you have a limited amount of funds, you may not have a choice. With only $500, for example, splitting your acquisition...