Penny Stocks are common stocks that are traded for less than five dollars a share. They are traded over-the-counter through certain quotation services. It is also referred to the stock trading that takes place outside any major stock exchanges or the stocks of small companies.

Penny stocks are considered to be very risky and highly speculative due to the following reasons:
• Small capitalization
• Lack of liquidity
• Limited following
• Limited disclosure
• Large ask-bid spreads
• Lack of financial reporting
• Fraud

Why is Penny Stock a high risk investment?

• Due to its potential for rapid growth and low pricing many new investors are lured to appeal of it. But they lose all their value as long-term investments. Hence severe loss can occur. So investors are advised to know the risks involved before going in for penny stock trading.
• A sudden demand for penny stocks or lack of liquidity can also affect the volatility of penny stocks. It can either make the prices go up or down. It can also be extremely difficult to sell these stocks at such times.
• Penny stocking companies have no listing or regulatory requirements. They also offer no protection or privileges for the investors.

Penny stock trading is one of the greatest ways to make some big money in the stock market. But you have to know what stocks to look for and how to approach them. They are one of the most manipulated and most volatile methods of investment in the stock market scenario.

How to trade Penny Stocks

Trading of Penny stocks is over-the-counter with the help of a broker. You need to hire a broker for both buying and selling your shares. So make sure you have enough money to pay the broker’s commission as well. You can also do online trading by opening a stock trading account and practicing till you are comfortable.

Penny Stock trading is unique and exciting. It is almost like running a home business. It gives you money as well as flexibility of time and you get to be your own boss.