Other names for penny stock investing include small cap investing, micro cap investing and nano cap investing. The stocks are common issue stocks with a trading price of five dollars per share or less. The stocks are sold over the counter using a quotation service. The stocks are highly speculative and may be very volatile as well. There are some important things to keep in mind before investing in these stocks. If you want to be a profitable trader, you should know how to find the answers to questions in these suggestions.
Check the Share Distribution
A wide distribution of shares is the best policy. When most or all of the shares are held by a particular offshore account, it is more than likely you would not be able to resell your shares if the price goes against you. If millions of shares are being sold in an effort to inflate the stock price, you won’t be able to sell, because there will be no one to purchase the shares. When you choose stocks, select those where there are numerous holders.
Verify the Legitimacy of a Company
You can take the time to find a telephone number of the corporation or its major executives. The phone should be a business line, rather than a residential number. The president or chief executive officer of a firm should not be the one answering your telephone call. In this understaffed situation, the status of this company is in question.
Check the Company History
Avoid the company that has a history of reverse mergers and reverse splits. This status would indicate little or no future for the success of the business. Instead, you should find a business that has a lengthy history with at least moderate success. The longer a company has been in business, the more likely it is to be a legitimate operation.
Whether you are doing penny stock investing or some other type, never invest more money than you can afford to lose. You may think you will always be successful in choosing and discarding stocks, but a high percentage of amateur traders lose everything they place into the market. Set your maximum risk level and stick to it.