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More Terms To Know About Penny StocksBefore we go any further, there are some additional terms as well as points to bring up that can help to clarify things that you are likely to see in the public buying forums for penny stocks. Understanding them will help you to stay educated as well as safer when it comes to investing in penny stocks wisely.
One term that you may come across from time to time is that of market makers. Now, you are likely to hear both good things as well as a few bad things when it comes to these guys. The question is, what is it that they do? A market maker is a broker that buys and sells penny stocks at 100 shares per transaction. While this may not seem like a whole lot, it can be a system that provides benefits to those that are dabbling into the penny stock markets. Why is that? It’s simple. The market marker system allows for market makers to purchase and sell shares at various prices. They do in fact set the price for the shares and this can help to keep purchases that are going back and forth increasing in value. In other words, each time that they buy or sell in that amount per purchase, they are able to set the tone for the penny stock, helping to increase the stock’s benefit to you, the share holder. Of course, it is good to have several money markets into this process as the more trading there is, the better the penny stock will fair as with any type of stock out there. To learn the names of the actual market makers that are dealing with the penny stock that you are interested in, simply consult the pink sheets. They are generally listed there for your use.
Remember that we have talked about the fact that all brokers in penny stocks are not holding your hand through the process? Some will dabble with what is called penny stock manipulation. And, it is just what it sounds like it is. Manipulation happens when there is a bad broker in the mix. Here’s a basic mix of what happens in this case. • There is only a few or even just one market maker involved. The market maker purchases a large amount of penny stocks for just about nothing. • He then creates a market of his own by stirring up sales. He will literally encourage others to purchase the stocks based on either fabrications or simply exaggerations of what the stock will actually do. Most of the time, these things are unfounded. • He sells all of his penny stock sales to those investors that have fallen for his sales hype leaving him with a nice penny to call his own of course. • Since there is so much buying of the stock, the price and demand for the stock rises. This allows for the stock to do very well, very quickly, turning a profit. • Yet, when the stock does not have any additional buyers, which is likely to happen quickly, the stock will bottom out or simply fall through leaving everyone with a stock that has nothing to it. In some cases, the market maker will then purchase up the stocks and do the same process over to other penny stock investors. The end result is that those that are holding the penny stocks can sell them back with no likely possibility of breaking even or they have nothing left. This can be quite frustrating to the stock holder and without even knowing it they have been taken for a ride.
Initial public offerings are in fact the first offerings of the penny stock to the general public. A company that is looking for investment dollars will begin the process of putting their company out there. Just like any stock market, it is important for new stocks to hit the penny stock market regularly, to keep it fresh with new competition and opportunities for those that are looking to invest to grow. Remember, just because a penny stock company is brand new does not mean that it is not worthwhile. In fact, if no one investing in the stocks for small companies, there are plenty of huge corporations today that simply would not be where they are. The trick is to know which to invest in and as we explained, doing your homework can make that process go much faster and easier for you.
What’s The Difference? Nevertheless, there are many things that you need to take into consideration. One of them is the difference in the penny stocks that we have been talking about, which are those that are on the secondary market as well as those that are on the Initial Public Offering market. There is a difference. What you should realize, then, is what makes the difference. When a company decides that it will begin to offer its shares on the penny stock market, the first thing it needs to do is to seek out the Securities Division. In doing that, it will need to go through some pretty heavy workouts by the Division. The goal of the guidelines offered by the Securities Division is that of providing for some information to the general public about the company and the risk involved. If you remember, we talked about how with most penny stocks, the markets do not have strict restrictions on what and who can be sold on these markets. Therefore, it can be tricky for the average person to determine if the penny stock they are considering investing in is a good idea or not. But, with Initial Public Offerings, there is a difference. Since this is the first time that the stock is on the market, the IPO, or Initial Public Offering, will be done will have many more restrictions applied to it. The Division is looking to insure that the penny stocks out there are actually offering something that is fair to the investor, something that is just to the investor and that it is equitable to the investor. There is no way to know for sure if in fact all of the companies that go through the IPO are actually high quality companies, it is harder to get through a bad company or a scam in this manner. These guidelines do help to keep fraudulent offerings out of the picture. They will not allow those companies that are found to be fraudulent or those that are not legitimate in some other manner will not be provided with registration and therefore can not be sold as penny stocks. Therefore, those that are investing in Initial Public Offerings will have less of a chance of getting the bad guy.
Now, there is something else that you need to take into consideration here. That is that there are different laws that apply to different states. The bottom line is that there are plenty of opportunities to find the best companies out there but the rules and guidelines that apply to penny stocks in one state do not necessarily have the same guidelines in another state. You can learn more about your specific state’s guidelines by contacting and working with the Securities Division of your state. Most state websites will provide you with a link to this division’s website. Make sure you take some time to check it out.
In addition, you should realize that penny stocks that are on the secondary market do not necessarily have the same guidelines or rules applied to them. In fact, there are big differences in which secondary markets in penny stocks can be quite tricky. The requirements are usually less stringent and there are likely to be fewer laws governing those investments. Therefore, more attention to detail should be paid here. Now that you have a good idea of what some of the additional terms that you will be seeing throughout penny stock investing are, you can begin moving into purchasing and using the information that you have gathered here. To Review But, before you do that, let’s review what we covered here so far. Be careful with who you are purchasing your penny stocks from. It pays to take the time to learn not only about the actual stocks but about your broker too. No matter how nice they seem, you do not want to end up with someone that is manipulating the stocks to look better than they are. It is also important for you to look at the long term history of the penny stock. A penny stock that is a initial public offering will likely have more stringent guidelines on it, but that does not mean that it is 100% guaranteed to be something you want to invest in. Instead, do your own homework. It pays to invest wisely in educating yourself about market makers as well. You will learn to notice these things as you go throughout the process of penny stock investing. What’s more is that you are likely to be able to make better decisions now that you have a few more things under your belt. But, wait, we are not done yet. We want you to head out into the world of penny stocks with all of the information that you could possibly need to make a solid decision. Therefore, the following chapters will provide you with tips, hints, tricks and more information that you have to know to make it big in penny stocks. |
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