How to Protect Yourself when Penny Stock Trading

Penny stocks are a complicated thing in the financial trading world. At first glance, the idea of an extremely low-priced stock may seem like a great way to get started when you’re looking for insights on how to improve your trading strategies. After all, the less money you need to put into a stock, the less you risk losing. However, even the best penny stocks aren’t quite as simple as they seem. The first thing you should know is that they almost never cost a penny. Penny stocks generally refer to any stock under the price of $5 a share. Additionally, these stocks are riskier than the standard options on the stock market because they have no background in any traditional trading space. You’re basically hoping that the stock is going to take off, and that it will reward you when it does.

Avoiding Low-Quality Markets with Penny Stocks
If you decide that you want to get involved with penny stock trading, then you’ll need to make sure that you have a strategy in place to protect yourself from bad trades. Of course, it’s impossible to completely prevent any bad trades from happening, but there are things that you can do to reduce your risk of an issue. For instance, you can avoid getting involved with any low-quality markets. There are various stock markets out there that can trade penny stocks. However, the exchanges available aren’t all created equal. Knowing how to stay out of the bad neighborhoods in the penny stock space is one of the best things you can do. Ideally, you should keep your focus on penny stocks that are in tried, and trusted markets like the NYSE, the NASDAQ, and the American Stock Exchange.

The Markets to Avoid with Penny Stocks
A lot of people assume that you can only ever find the true penny stocks in locations outside of the major markets. This simply isn’t the case. However, there are many alternative locations where you can consider trading penny stocks if you want to get your hands on even lower prices. Of course, taking a risk with these markets means that you’re also risking your money.

One particularly popular option is the Bulletin Board or the OTC-BB. This market is owned by the NASDAQ, so it’s safer than most. It comes with things like standards, listing fees, reporting requirements, and information that must be provided by the companies trading upon it. Higher-quality stocks often list here when they’re not quite ready to attain the status that they would need to join the NYSE or NASDAQ.

The markets that you really need to be wary of are the OTCQB or the Pink Sheets. These are the junky markets that can be very dangerous for penny stock investors. The reporting requirements and operating standards of these stock exchanges have been largely thrown out, which means that almost any business can be listed on these channels. Although it might be tempting to look for a low-price deal on a pink sheet marketplace, it’s generally not worth the risk, particularly for people who aren’t used to trading.

Posted in Finance.