Many people are interested in penny stocks, but have no idea on how to invest in them. Penny stocks are also known as Microcap stocks or nano stocks and trade for less than five dollars per stock A general definition for penny stocks would be, value of a joint venture of shares that are outstanding.
One can calculate a market capitalization of the company by multiplying the company's stock price with the outstanding shares. This would give us the total dollar value of all the current shares of the company at that particular time. Penny stocks are traded on OTC market. Stock trading is done through brokers who hold transactions between the third party and the investor and take a commission for all such transactions.
In penny stocks trading, brokers are also paid according to the transactions made while buying and selling penny stocks at the right time. The amount that is paid to the broker is called spreads. Spread is the difference between the ask price and the bid price.
In most of the penny stocks, the spread is fixed at 25 to 33%, it can increase from 50 to 100%. Penny stocks are subjected to price increase, where the broker holds the penny stock and sells stocks at price that would give him the maximum gains.
Penny stock pick trading can be very complicated, with many pitfalls and potential losses. However, penny stocks are good investment as they can help start-up companies to start their business without much capital. For best results, take the help of a broker dealing with penny stocks or from penny stock picker and software programs have been developed. With the use of computers, many calculations and track records of staggering amounts of data can be done. Investors can choose stocks and invest in better options of return.