Business Management Skills

What are penny stocks but a way to make money in a short period of time? Well, they are also a way to lose money within a short period of time. The penny stock market is not a place for beginners, no matter how enticing the stories are of people doubling, tripling and quadrupling their investments. That being said, with a bit of research and a clear head a person could very well make a few successful investments that result in a tidy profit.

If you ask one investor what are penny stocks, you will get one answer, yet if you ask another investor, you could get a different response. It really depends on which country you live in, and whether you go by the SEC definition or a more generally accepted one. Naturally, a penny stock will be one that is small in value, usually less than five dollars. However, a penny stock could be defined as a share in a company that is small, regardless of what the actual share price may be.

In the US, however, there are different answers to that question of what a penny stock actually is. One definition considers all penny stocks to be those that are traded outside of the major exchanges, like NASDAQ or AMEX. The SEC has a slightly different definition, where a penny stock is defined solely by the share price, as long as it is fewer than five dollars. The market capitalization of the company does not matter, nor does where you trade the stock. This means that you can trade your penny stocks on NASDAQ or through a listing service that is not a secure exchange.

If a new investor asks you what are penny stocks, you obviously won’t be able to give them a concrete definition, but at least you can provide them with a couple of descriptions that should help them understand these types of stocks. Size is the major factor when defining a penny stock, and this size could relate to the value of the penny stock itself, or the value of the company that the stock represents. Defining and understanding penny stocks is an important part of being a successful investor, since success is usually a result of research and knowledge.

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