Many people are interested in them, but often have only the faintest idea of how to invest in penny stocks. This term, usually interchangeable with microcap or nano stocks, refers to those stocks that are traded for less than five dollars. A more general definition would refer to the aggregate value of the company’s common shares outstanding. This is the market capitalization, not the stock price. But there is still no clear definition of a penny.
How to calculate the market capitalization of a company or market capitalization? Take the number of shares outstanding and multiply that by the company’s share price. This will give, at some point in time, the total value of all the company’s current shares in dollars. Penny stocks are now traded on the OTC or OTC market, unlike other stocks traded on the stock exchange. Most stock trading is done through agents or brokers who act on behalf of investors to arrange a transaction between a third party and the investor. Intermediaries – brokers and agents – get their piece of the pie through the commission they earn for aiding the trade.
Penny stocks, however, are considered major broker transactions and are charged accordingly. This means that instead of paying a commission, the broker earns money through a so-called spread, selling and buying at the right time. This is because penny stocks are not bought and sold at the same static price, but at different prices. Spread is the difference between bid and ask prices. For most stocks the penalty is a spread of 25 to 33%, although sometimes it can increase to 50-100%. Another difficulty in calculating spreads for penny stocks is the fact that there are two request prices and two offer prices, and these are called external and internal question and offer prices. In general, the greatest interest is external sales prices and offers. In addition, penny stocks are subject to a mark-up with a surcharge if the broker holds a penny. Its price is inflated because the broker took some of the risk due to fluctuations in market prices.
It would seem that penny stocks are very complex, with many possible pitfalls and losses if these complications are not handled properly. Large sums of losses are quite possible and have happened before with investors trading penny stocks. However, penny stocks are still good potential investments, as they can help startups without much capital to invest. The best way to start would be to ask a reliable broker how to invest in penny stocks.