What exactly are penny stocks? Confusing as it is, the term does not have a standard meaning. Look it up in any encyclopedia or dictionary, and you will see hundreds of definitions of penny stocks. It is hard to tell which of the definitions capture the real essence of this type of stocks, especially if you are not well-versed about stock market trading. Now, if you think about it in literal terms, would it be suffice to say that penny stocks are named as such because those stocks are bought and sold in exchange of a penny? Don’t you think it will ever be objected? Yes, this literal definition may seem ridiculous and inaccurate. But with the overwhelming number of explanations about penny stocks in various online and offline resources, one cannot help getting frustrated about what they really refer to.
A simple and easy-to-understand definition of penny stocks is that they refer to publicly traded corporations that have very small markets. Stocks, in general, are divided into three categories: small caps, mid caps, and large caps. Another category, which is smaller than small caps, is the micro cap. Penny stocks belong to the micro cap classification of stocks.
If you invest diligently in penny stocks, you can make a fortune out of them in the long run. The key is to hold your penny stocks until the right time comes to sell them. For example, when there is an increase in the stock prices of the penny stock company you are investing in, you can take advantage of the situation by trading your stocks wisely. Such a scenario happens when the prices of the products sold by the company goes up, which in turn increases the share prices of the company.
As with other types of stocks, penny stocks do not come without risks. But you can minimize your loss by being persistent when trading penny stocks. Consulting with your broker from time to time helps, too.