All About Penny StocksUnderstanding Penny Stocks by Peter Leeds

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Where Do Penny Stocks Trade?

Penny stocks trade in many places. Some stock markets are very good for trading penny stocks, while others are very dangerous to investors. At the same time, some sources of penny stocks are reliable and trustworthy, while other sources are very risky.

I have always been a proponent of trading in penny stocks, but there are some markets that not even I would go near.

penny stockspenny stockspenny stocksNASDAQ SmallCap Market

This is both the safest and best place to find penny stocks.

Companies listed here have regimented reporting requirements, and must keep in compliance with these to maintain their listing. This enables investors to have access to the company's financial results and ongoing reports.

Usually, the shares listed here will be $1.00 and up. If the shares of a company on the NASDAQ SmallCap begins trading for less than $1.00, the exchange usually boots these stocks, forcing them to drop down to the OTC-BB (see below).

Most financial quote and news services cover shares on the NASDAQ SmallCap market, so it enables greater information visibility.

As well, the increased visibility will improve trading volume and investor participation. Your brokers will have no trouble enabling your trades in NASDAQ SmallCap shares, and probably won't have any additional commissions or rules for trading these issues.

Shares on the NASDAQ usually have four-letter ticker symbols, such as PVAT, IDEV, and DRAX.

  • Excellent investor visibility
  • Strict reporting and corporate responsibility standards
  • Easy to buy and sell
  • Easy to get information and data about the company

penny stockspeter leedsOTC-BB (Over-The-Counter Bulletin Board)

The OTC Bulletin Board (OTC-BB) is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (OTC) equity securities. It is owned and operated by the Nasdaq, so is very legitimate.

An OTC-BB equity security generally is any equity that is not listed or traded on NASDAQ or a national securities exchange. In other words, it is a system for creating some regulation and accountability for stocks "without a home."

  • The OTCBB provides access to more than 3,600 securities;
  • Includes more than 330 participating Market Makers;
  • Electronically transmits real-time quote, price, and volume information;
  • Displays indications of interest and prior-day trading activity.

peter leedspenny stocksAMEX

The American Stock Exchange, like the NASDAQ SmallCap, is an excellent source of penny stocks. You will find that shares trading here may have less volume than those on the NASDAQ SmallCap, but the companies are subject to reporting requirements and are followed by many news and quote services, so investors enjoy the same benefits derived from the SmallCap exchange.

Your broker will have no trouble trading in AMEX shares.

  • Excellent investor visibility
  • Strict reporting and corporate responsibility standards
  • Easy to buy and sell
  • Easy to get information and data about the company

penny stock picksstock tipstrading investPink Sheets Penny Stocks

Do not buy these ever. The pink sheets are stocks that trade without any reporting requirements or regulation, and have no responsibility to you, the investor. They are very hard to buy and sell, as the trading activity in them is very low and sporadic.

The origins of the Pink Sheets go back to 1904, when the National Quotation Bureau began as a paper-based, inter-dealer quotation service linking competing market makers in OTC securities across the country. Since that time, the Pink Sheets and the Yellow Sheets have been the central resource for trading information in OTC stocks and bonds.

There are far fewer listing requirements. There are far fewer rules. This is what the stock market would be like in a post-apocalyptic world.

  • Never buy pink sheet stocks
  • Non-existent reporting and corporate responsibility standards
  • Easy to buy and very difficult to sell
  • No information or data about the company, or about the trading activity/prices of the shares

where penny stocks tradepink sheets nasdaqtrade buy learnPenny Stocks Straight from Companies

It is possible to buy shares directly from the companies in some cases. The main reason to do this would be to avoid paying a brokerage commission. As well, it may be an easier way to acquire shares in a more obscure company than trading for them Over-The-Counter.

Besides the fact that I discourage trading in Over-The-Counter stocks, there are inherent problems with direct purchasing. There can be no assurances that you are getting a fair valuation based on prevailing market prices, and in most cases the quoted amount will be higher than you would have had to pay if buying on an exchange.

For thinly traded Over-The-Counter equities, it may be near impossible to get appropriate trading prices. OTC issues do not have any system of matching up buy and sell orders, so buying the shares is no different than buying a used car. The seller may be asking far too much, and perhaps far more than the most recent trades. The point is that you would have no way of knowing.

  • Never buy directly!
  • No brokerage commission charge
  • Probably non-existent trading volumes
  • Easy to buy, probably impossible to sell - the company will not even buy them back!
  • No corporate responsibility requirements whatsoever!

peter leeds scampeter leeds complaintspeter leeds reviewsPenny Stocks Over The Phone

Although it was more prevalent in the '70s and '80s, phone salesmen touting stock should be considered dangerous.

Under no circumstances should any investor accept an offer to purchase shares in a company that they heard about through an unsolicited phone call, fax, or e-mail!!

Be sure to watch the movie, "Boiler Room" to get a feel for how these scams operate. I highly recommend this movie, which will help drive the point home.

The companies are promoted aggressively, and in most cases are nearly non-existent, poorly run, fundamentally vacant shells. It is nearly impossible to resell shares in these equities, whether you have made a profit or a loss.

The promoters will be pressuring you with a time frame, and may demand immediate action. The stories of the promoted stocks border on incredible, and certainly, "...if their product or service is embraced by the public, the shares will skyrocket, and the industry will be revolutionized..." Hang up the phone. Don't say anything - just hang up.

For those that ignore this clear and precise warning, you will deserve the returns these stocks provide you with.

  • Don't even think about it!
  • Non-existent reporting and corporate responsibility standards
  • Potentially non-existent company
  • Easy to buy and impossible to sell
  • No information or data about the company, or about the trading activity/prices of the shares
  • Prices are arbitrary and baseless
  • You are almost certainly being lied to, or aggressively mis-led

penny stockstrading chartsCanadian Markets

The Toronto Stock Exchange (TSX) and Toronto Venture Exchange (TSX-V) both list penny stock shares, some as low as a couple of cents. If your broker allows for over the border trades, we highly recommend getting involved with Canadian penny stocks. These companies are often trading so inexpensively simply because they are smaller in size (as opposed to being extreme long shots, or highly speculative). With Canadian penny stocks, there are literally thousands of good companies to choose between.

  • Huge selection of penny stocks
  • Potentially higher brokerage trading fees
  • Good reporting requirements and corporate responsibility
  • Good to medium availability to corporate data/information
  • Ease of access to trading and pricing data
  • Easy to buy and sell
  • Good trading volume in most cases