Penny Stock Trading - Know These Shocking Facts!

If you have been investing in stocks for sometime, you might have read many stories of how people became rich by investing in penny stocks. You might have stories like how person invested in a $0.15 penny stock and it went as high as $150 in just a matter of few days giving him a whopping return on investment of 1000%. There are even stories of people making a return of 10,000% on a penny stocks. Well, I don;t doubt these stories. Penny stocks are no doubt a great investment , if done properly. But the problem with most of the penny stocks is low liquidity. So the market for these penny stocks dries up every quickly. If you ahve invested in a penny stock, you might have experienced how essential, it is to get out quickly before the liquidity dries out.

Now, for a new person what is a penny stock. Penny stocks are those stocks that have a price of less than $5 per share. Penny stocks unlike the regular stocks are traded on the Pink Sheets. Most of the regular stocks are traded on the established stock exchanges. You can trade a stock on the stock exchanges like NYSE (New York Stock Exchange), AMEX or NASDAQ without it being listed there. To get it's stock listed, a company has to fulfill a number of strinent requirements. This acts as a screening process and only well reputed companies get listed on these exchanges. But as compared to that listing requirements on the Pink Sheets are not stringnent. Not much disclosure by the company is required. This makes the world of penny stocks somewhat murky.

This does not mean that you should stay away from penny stocks at all costs. Just be careful and do your due deligence. You need to know that many stories of penny stock pumping and dumping scams perpetrated by penny stock newsletters circulate. Here is what happens! You are a subscriber to a penny stock newsletter. You get a recommendation about a penny stock that is expected to rise from $0.15 right now to $15 per share in the next few years. You are being told to buy it just now!

When most of the subscribers read about a great money making opportunity in the making, they get excited. Without any due deligence, they buy that penny stock on the recommendation of these newsletters. Now, most of these penny stock newsletters have build a list of thousands of subscribers over time. You can well imagine, when thousands of people try to buy the same penny stock at almost the same time, the price jumps. Viola, the penny stock price jumps as predicted. This impresses many novice investors.

Soon, this penny stock has indeed reached where it was predicted to be. Then the market suddenly dries up as this sudden rise is not supported by any fundamental or technicals. It is just a product of market hype created by a few penny stock newsletters. This penny stock then drops like a rock with most of the investors losing their shirts along with it.

So, if you want to invest in penny stocks, you need to do some research about the liquidity of that penny stock. See, what the daily volume of that penny stock trading is! Now, sometimes, the penny stock company may have strong fundamentals supporting it like good earning, launch of a new revolutionary product, some breakthrough research. In that case, no doubt the price increase will be sustainable. However, you need to do your due diligence and do your research to make sure that you don't become a victim of pumping and dumping.

As compared to stocks or for that matter matter penny stocks, currency markets are huge, It is being said, that currency trading is going to make many millionaires in this decade. You don't need a large capital to start currency trading. You can open a mini account and start trading with $500. There are many good forex signal services in the market that you can use to trade forex. It is as simple as reading an email. There is no big one trade. Always remember, you grow your wealth slowly incrementally by using the power of compounding!

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