(EMAILWIRE.COM, December 18, 2009 ) Dallas, TX - Penny Stocks work like any other stock. The cost of penny stocks is relatively less per share – sometimes just as less $1 or $2. If you are planning to invest into penny stocks then you must subscribe to free penny stock newsletter offered by Winning Penny Stock Picks.


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Volatile is a word that describes the penny stocks market the best. Making a good profit can happen as quickly as losing your whole investment. A couple of things to look out for when trading in the penny stocks market are:


Sign up with a brokerage firm and there are three options when it comes to choosing a brokerage firm


1) Full Service - These firms have high commission and fee structures and their advisers are likely to be working on commission, so any information regarding investment options is or can be biased toward the firm’s or the adviser’s vested interests.


2) Fee Based Service - Advisers working on a fee-based structure are paid to gather information for making smart investment decisions so there’s less likely to be any incentives to steer you towards certain types of investments. You’ll have to pay the standard trading fees though.


3) Online Discount Brokers - Commission and fee charges are the lowest in case of online discount brokers, but this is best left for the more experienced penny stock trader. Research will have to be done by you and online discount brokerage firms don’t provide any investment advisory services.

Step 2

Do a thorough research and regardless of which broker you choose, always know where your money is flowing into. Information on penny stocks can be found online under the SEC listings, Pink Sheet listings and “over the counter” (OTC) stock listings and since, penny stocks trade for less than $5.00 a share, they have minimal listing requirements, which means that you’ll have to do a lot more legwork to make sure that the company you’re looking at is legitimate and credible. Majority of penny stock companies are start-ups and hence, financial statements and profit or progress reports will be limited.

Step 3

Figure in pricing factors and depending on which broker option you choose, most pricing factors will remain constant whenever any trade is done. The spread (which is the difference between the buy and the sell price) has built-in loss incurred whenever you buy a part of the stock. The spreads for penny stocks can range between 25 to 100 percent so you want to know the amount of spread you’re working with when figuring profit margins. Another factor to consider for penny stocks is that there are two bidding prices and two asking prices for each stock. The inside bidding and the asking prices are the lowest prices and the outside bidding and the asking prices are the highest.

Step 4

Consider the risks well since the penny stocks market is the highest risk investment that you can have in the stock market. Though cheap to buy, penny stocks are hard to sell if no one in the market is just for the company shares that you’re holding. Also the share volumes for penny stock companies are low, so any “flow” of buying or selling for a particular stock can raise or lower its price.

However, several multinational companies including Google started off as penny stocks. Those investors who invested in penny stock shares of Google at its nascent phase might have benefited more than any other stock traded in NASDAQ, AMEX or NYSE.

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