Defining the Penny Stocks Market is essential of successful penny stock trading.
This market exists, trades within, and is a sector of the broader stock market. The broader market we will study includes both the US Stock Exchange, the OTC and the Toronto Stock Exchange.
How to identify the Penny Stocks Market
The market consists of common stock traded under $5.00 a share with a market cap of under $300,000,000.
That is the simple definition. Granted some will have far more restrictive definitions of Penny Stocks, but anything more or less than this basic definition is unrealistic in reality. . .
Why unrealistic? Unrealistic because lesser restrictions would be too broad. More stricter definitions do not allow for clean categorization of penny stocks. Smaller stocks constantly change their qualities, even in a short time. This constant changing of stock characteristics makes the identification of stocks based on strict guidelines far too difficult to pinpoint and keep track of.
In addition, this site uses the term penny stocks to define those stocks that Extraordinary Investors screen and target for maximum low risk profits. That is how Extraordinary Investing defines penny stocks.
So, when this site refers to penny stocks, understand that what is referred to is any stock trading under $5 a share with a market cap of under $300 million, no matter
• what exchange the stock resides
• how many years in existence
• how many assets the company has or doesn't have
• how many tangible assets
• how much debt
• how much profit or loss
Extraordinary Investors typically trade penny stocks with a market cap between $15 million up to $100 million and up to $3 per share.
All Penny Stocks are Micro-Cap and Nano-Cap Stocks.
Micro-Cap stocks are those stocks with a market cap of $300 million or less.
Nano-Cap stocks are those stocks with a market cap under $50 million.
Considering the perimeters that define penny stocks on this site, a person can easily recognize the Penny Stocks Market within the broader stock market and screen for stocks within that sector of the stock market quite efficiently.
The following types of stocks can never be classified as penny stocks because their market cap is too high:
Small-Cap stocks have a market cap under $1 billion.
Medium-Cap stocks have a market cap between $2 billion to $10 billion
Large-Cap stocks have a market cap over $10 billion
Mega-Cap stocks have a market cap over $200 billion
Now that the penny stocks market is clearly defined, we can move on. . .
Due to the small capitalization of many penny stocks, any large amount of buying or selling of penny stock shares usually cause huge swings in share prices.
These huge swings in share values are created very quickly making them very risky especially for large investors. Why? Because not many traders or investors know how to correctly research and trade penny stocks.
If the swing in share values should turn negative the selling of a huge number of shares of such tiny stocks at a decent price may be extremely difficult. Large investors stand to lose significant investment principle to the market trading such stocks.
In the USA, penny stocks are traded on NYSE, NASDAQ, NYSE MKT (AMEX), OTC BB, Pink Sheets and Gray Sheets.
The NYSE, NASDAQ and NYSE MKT (AMEX) will be discussed in this section called: The Stock Market Essentials for Penny Stock Investing.
The OTC BB, Pink Sheets and Gray Sheets will be discussed under the topic: Technical Stocks.
A good number of recently blue chip stocks on the NYSE and NASDAQ are now penny stocks trading under $5.00.
Most penny stocks we are concerned with are traded on the NASDAQ, the NYSE MKT (aka AMEX), and the OTC-BB. All of these platforms are described soon in up-coming sub-topics.
Penny Stock Market - Home to penny stock scams
Since penny stocks are generally thinly traded and speculative, the penny stocks market is home to various stock promotion and stock bashing scams. Theses scams are marketed by means of various social media sources including email (e-newsletters, stock pics and lists), blogs, faxes, message boards, press releases, chat rooms and many penny stock websites.
This site explains the methods and means by which professional marketeers program traders to give their money to them through their scams.
This site also shows you how to not only avoid the scams, but make such scams work for you to create very successful trading.
You have now completed this sub topic called the Penny Stocks Market - Identified, Defined and Explained.
When you are ready, please continue on to the next subtopic. The following subtopics provide more detailed information about the financial markets that exist within the US Stock Exchange and the OTC in relation to Penny Stocks.
This information is extremely important. You cannot successfully trade in Penny Stocks unless you know how the Penny Stock animal operates.
Next Lesson: NYSE: New York Stock Exchange