A penny stock is a common word for all stocks and shares that are traded in small denominations, that is the stock market values of these shares and the IPO and face vales of these shares are small. The market capitalization also usually ranges from nano to small caps that is from below $10 million to about $100 million. Penny stocks are in fact often known as micro cap equity. Apart from regular high valued and high traded shares and stocks, penny stocks are a great investment and provide relatively good trading opportunities. Here's a comprehensive insight into the penny stocks to buy…

About Penny Stocks

Though there are quite a few meanings of penny stocks, the United States Securities and Exchange Commission has stated a official or conventional definition. As per the commission, a penny stock is a share that trades for less then $5. This kind of stock is basically a stock that has quite low market value and trades and sale of one security will gain penny profit. It is not possible to have vast profit on single share in such a case. The penny stocks in some nations can go as low as $1 and in some cases in denominations that are lower than a dollar. Market capitalization is also often used to define penny stocks, in United States for example, the range is often between $25 million to $50 million. There are however some companies which have larger market capitalization in spite of the penny stocks which raise their capital. Penny stocks like all other stocks and joint stock company instruments, tend to have a good projection. The drawback is that you need to get these stocks in a huge bulk as the denomination is small, usually around $5 though it can get as high as $20.

Where to Buy Penny Stocks

It must be noted that, for stock investing in such shares, you will have to approach a OTCBB and Pink Sheets broker or dealer, as these stocks are prominently over the counter stocks and are usually not listed on national stock exchanges, such as NASDAQ or New York Stock Exchange. They are found at the OTCBB, which is Over The Counter Bulletin Board, acts like a stock exchange.

Penny Stocks to Buy

If you are having queries such as how to trade penny stocks, or how to buy penny stocks, then you have come to the right place. Though penny stocks work exactly the same as a normal stock, from the investor point of view will have to maintain a subtly different approach towards penny stock investing. You will keep coming across recommendations and lists such as best penny stocks to buy, hot penny stocks and penny stocks to buy, etc. Well, you can put them to use. Now, here is where the testing part begins and make sure that you are careful, as penny stocks have low liquidity and are sold off in low numbers as well as against low denominations. Thus you are not just subject to risk but you are also subject to stagnation, that is a situation where you are not able to sell off your stocks, because the company's growth and progress graph is horizontal. Here's how you underwrite your profit probability:

• The process is very, very simple, and your first step should be looking into the company's current affairs, the sales, last year's turnover projection has been forecast, etc.

• Stick to this analysis for sometime and find out more about the company and sector, check out their history and future potential sales, potential markets, etc. Once this is done compare the company with other companies in the sector or industry. Also make it a point to check whether it is a subsidiary of any other larger company as such stocks are very safe.

• Next off, analyze the penny stock market, you will have to consider the requirement of the company's products, the reputation of the company and the volume of product that is required in the market. The more the volume, the safer is the company. Example, penny stock of a coffee chain company, which is reasonably popular, is bound to prove as a good investment.

• You can also track the behavior of the stock of some months. If it is showing a good projection, slow and steady, then its a good penny stock. However if it is depicting a sudden behavior, such as sudden rise and fall then it is not a very healthy stock. For additional research purposes you may also refer to penny stock chasers.