What You Need to Know About Penny Stocks 

Investing in penny stocks can be lucrative, but it can also be risky, which is why many traders avoid penny stocks when looking for cheap stocks to buy. 

To find success trading penny stocks, you need to reframe your investment mentality and recognize that the penny stocks trade market is not like a traditional major stock exchange. 

There are different rules to penny stock trading and dramatically different approaches. While traditional stock trading methods will not work, you can learn how to successfully trade penny stocks and make a reasonable amount of profit in the process. 

What Is a Penny Stock?

The U.S. Securities and Exchange Commission (SEC) has since revised the definition to include any stock priced under $5 per share. 

The vast majority of penny stocks originate from untested small companies that don't have any past performance to accurately judge their performance on the market. As a result, most penny stocks are traded over-the-counter (OTC) on either the OTC Markets Group or OTC Bulletin Board. 

How Penny Stocks Work

Ideally, penny stocks trading works best when you identify a positive market trend, purchase shares quickly, and then sell penny stocks before the value dumps again. 

This is one reason why penny stocks are considered risky investments, as trading strategies are almost always short-term. 

One primary concern surrounding penny stocks on the OTC is fraud since these markets are not tightly regulated. Although infrequent, penny stock companies can result from clever marketing campaigns designed to supplement clever pump and dump schemes. 

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