Let us break this down
1. You see a stock in the market
2. it is under $5 and looks like a penny stock
3. It goes up and down
4. You start to question what is going on
5. It goes up and down more
6. You freak out
7. This is all equals what a penny stock is like
Now let us piece this together, you are looking in the market and you find a stock that fits the description of a penny stock, you watch it as it goes up and down, and at first you are just “whatever” about it and then it goes up and down even more and you start freaking out because of the volatility.
Penny Stocks 101
Most of you probably remember hearing about penny stocks by Leonardo DiCapiro in Wolf of Wall Street, but what determines a penny stock?
• Any stock that trades below $5.00
• Most trade on OTC (over the counter) market, this an exchange like NYSE
• Some do trade on major exchanges like NasDaq
The Major Keys To Penny Stocks
Penny stocks tend to be like a your favorite ride at Six Flags, up and down, through loops, and on you are on the verge of throwing up. #goodtimes So what makes penny stocks like this?
1. Historical Data: Most of the stocks are either to new to have data or close to filing for bankruptcy.
2. Not Enough Demand: Remember market works on supply and demand, if there isn’t enough demand it is often hard to liquidate your shares, or easy for a larger buyer to influence the price movement.
3. Less Regulations: Being traded on a smaller exchange like the OTC, require less documentation and therefore less regulation.
4. Less information: Overall a lack of information, really accredits to the predictability of a penny stocks, you will not find articles or Mad Money talking about these stocks. Making it harder to be smart about your investments in them
Overall penny stocks are considered a risky investment and while they can appreciate with big gains, they can also file for bankruptcy and wipe away all your capital. It is smart to consult with an advisor before getting involved into penny stocks and setting strategic buy orders. Again, we are Orca’s we strategize and look for opportunities to attack on. We are not the Wolf Of Wall Street rather The Orca Of Wall Street.