Throughout our lives, we have definitely heard attractive stories from investors who claim to invest a small portion in a particular company and have it returned a hundred or a thousand times bigger. The World Wide Web is also flooded with stories of this and that guy who became wealthy by investing in small cap stocks which grew considerably after sometime. Yes, they’re attracting stories and what’s best is that they seem uncomplicated. All you have to do is to invest some in penny stocks and then put them up for sale when the prices rise. However, no matter how easy the process might be, the process of losing money is definitely too easy as well.

Before being confused, let’s take a glance on the classifications of corporations which trade on the “OTCBB” or “Pink Sheet” markets. OTC stocks are usually stocks that have been delisted from the NASDAQ.

These corporations are those whose progresses were brought to a halt. It’s true that they have the potential to have better and compromising days in the future yet the present threats and odds are too much to handle. It’s a wise decision not to invest on these stocks but if you’re really enticed to do so, wait first for the stock to rebound and rise because if not, your pocket will seriously get hurt. There are countless corporations who go out on the public limelight annually. Of course, it is necessary for a company to be known publicly so that they might have a great chance for business expansion as well as cashing out of equity. A lot of them will file for an IPO yet others will guise themselves as penny stocks on the OTC BB.

Next, we should take a look on the tips that a penny stock trader must remember so as to not to fall into the trap of misleading promises.

Penny Stock Due Diligence

Those stocks which are on the Pink Sheets are not required to file annual and quarter statements. Obviously, this makes it difficult for you to start your due diligence. Most of the time, the information is very descriptive and “believable” yet it is also filled with biases. Of course, a share holder will say only the good and encouraging things about the corporation in which he or she purchased stocks. Some of them might be true yet some of them might be too desperate to let go of the dying company and sell their shares to you by concealing their real reason.

On the other hand, those stocks which are on the OTC BB diligently file annual and quarter statements. You may use these statements as a basic point of reference for financial success. You can see that some penny stocks lose a lot in the monetary department because of ineptitude in the managerial, research or development departments. What you should look out for are the companies who possess a great track record when it comes to the consistency of their money production and business strategies.

Penny Stock News Information

Disclaimers are often tell-tale signs of the credibility of newsletters. Check if the newsletter is being paid in cash or shares by a particular company. If they are being paid in shares, don’t worry though because it’s their job. If they are successful in marketing a story, then they’ll gain.

The next thing to observe is the record of the newsletter. Does it have a pride-worthy roster of winners? Does it merely tell the fact? Does it also give opportunities to feature stock profiles for free? If your answers to this are “yes”, then you have the guarantee that the newsletter really does its obligation to research well and assess a company based on truth.

Again, what if you realized that a corporation is using the service of an IR professional to create a profile of its stock to subscribers? Should you run as soon as possible? The answer is no, you should not. It’s wise to think of the payment as advertising, like what you see in usual publications. The company is obviously aiming for exposure and one strategy is by advertising so don’t easily conclude a paid profile as a mere senseless publicity. Pay close attention and focus on each aspect of the profile. Maybe you’re in for a rewarding financial treat.

Penny Stock Dilution

If you’re aiming to rake in cash, it is necessary for you to buy and sell an apt portion of shares so that you can secure your profit, or at least guard your capital. If Company A’s volume only reaps 500 shares a day, it might take you a lengthy time to have a valuable position. What if a bad news occurs and threatens the company’s stability, who will be interested to buy your shares? Obviously, if the corporation’s volume of shares is low, avoid it. It might be convincing but it won’t be worth it. If you still feel a strong attachment towards the company, talk to them directly and negotiate a safe and reasonable deal.

Trade The Results or Trade The Hype

If you fall easily on the publicity, chances are, you will end up losing your capital while everyone else has already sold their stocks. It is recommended that you should examine the corporation’s business plans and see if they are following the plans. Check if it has been successful with its ventures and if its released products have been well-accepted in the market. The hype might be very attractive but then it can also be misleading and too-good-to-be-true.

Monitor Position Size

There is a countless array of penny stocks that are available today, so you should remember that your position’s worth must play around $2000 – $3000. It might seem to be not too much but it is safer if ever a company’s worth suddenly dips low. If you have invested $20,000, a half loss of the company will take your $10,000 away forever. It’s best to keep capitals at minimum so that the loss won’t affect you so much. Remember that preserving your capital is the secret to successful trading.

Before purchasing, delineate a well-thought plan. Distinguish the reasons for your buying as well as your strategies. Determine what point you will pull out your profit. Carefully list down these considerations before you go on a stock shopping spree.

Whoever said that investing on penny stocks is profitable is not lying. However, as compared to shares in bank stocks, the risks in penny stocks are quite larger. Check your sources very well before deciding so that you won’t end up with a bad experience that’s far from what you have initially dreamt of.