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Getting Started With Penny Stocks

Penny stocks are low priced speculative stocks and these stocks are traded in the over the counter (OTC) market. As per SEC (The Securities and Exchange Commission of United States) the maximum price of the penny stocks is fixed at $5.00 per share and in actual the price of these stocks are well below and sometimes a mere one cent. Although penny stocks are commonly traded in the over the counter market, however these can also be traded at NYSE or NASDAQ.

How to start trading penny stocks: Although it is a common belief that the penny stocks are risky at the same time the share prices are generally low. The risk associated with penny stocks is also minimum. Many people see investing in penny stocks as an opportunity to learn share-trading techniques and at the same time not all penny stocks are risky. Although the investment in penny stocks may not substantially improve your financial situation, but the selected penny stocks may give you some profit.

If you have decided to invest a small amount of money in penny stocks, you will have to approach a trader or dealer to get started. As per the Securities and Exchange Commission of United States guidelines you have to give a written request to the broker and after approval you may buy the stock from the broker. You should consult the trader and should invest carefully. Your broker will tell you the rate of the stock and brokerage.

Before investing in penny stocks contact to the Securities division of your state and get information about the broker. The history of the broker provides important information if any, about the license and disciplinary actions taken against the broker.

Once you have decided to deal with a broker, get all the information regarding the penny stocks, brokerage and other terms and conditions in writing from the broker. You should also keep the records of all the written documents provided to you by your broker. You should ask your broker to provide you with the documents mentioning the recommendation for buying or selling of any penny stock. You should also take an independent opinion about the penny stocks from another broker and decide judiciously before making any investment. Your broker should also provide you with a monthly statement regarding the penny stocks held by you in your account and the rates of the penny stocks.

Securities Investor Protection Corporation Coverage: Brokerage firms dealing in penny stocks will generally have SIPC (Securities Investor Protection Corporation) coverage. If the brokerage firm is unable to pay you your dues as a result of a bankruptcy, the SIPC ensures that the customer owned penny stocks held by the brokerage firms are paid. SIPC insures the entire customer owned securities held by the brokerage firm, however in case of fraud, the insurer is not liable to pay the amount.

Although investments in penny stocks is not a quick rich scheme, the investment in penny stocks may provide an opportunity to learn stock trading. You should get at least a second opinion about the specific company before investing in a penny stock.



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The Dynamics Of Investing In The Stock Market

When we deal with investing in the stock market, it is true that one would be able to achieve a higher rate of return in possibly a small amount of time. However, it is also inevitable that one would be able to encounter various risks when you invest money in it.

This is actually considered normal because you would always have to encounter losing money when it comes to investing. Investing in the stock market is either no different.

Thus, one should ever be more careful when reading books and coming across certain websites telling you that in stock trading, you would have to experience no risk at all. That is entirely false! When it comes to investing, there would always be a risk factor that will be involved in that investment system. So, if you plan to invest in the stock market, you have to be aware that there is a risk. That is why you need to be a knowledgeable investor in the world of stock market.

Capital gains and losses:

If you are decided on investing in the stock market, you would surely come across these terms: capital gains and capital losses. Basically, we define capital as the money that you will be investing in the stock market. Now, if your stock portfolio is doing very good especially if you are investing your stocks in various publicly traded firms, then you may be able to increase your total portfolio by selling your stocks. You may also increase your portfolio by augmenting your portfolio value meaning you can buy more shares of that firm.

Now, the moment that you sell your stocks and you earn a profit, then you will be able to have capital gains on stocks. It is of this reason that you will be able to earn a lot in just a small amount of time. However, one should also know that the prices of the shares of stocks are highly volatile. This means that it can go down very rapidly. Eventually, you will have to sell those stocks and that will be called as the capital loss.

The structure of the stock market system is simple really. It is divided into 2 sects: the primary market and the secondary market. It is best that you know where you should belong to so that you will be able to learn the amount of risk that you will be able to acquire.
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