Investing in the stock market is risky, everyone knows that. But the stock market is actually bigger than the average person realizes. There are more investment options available than just stocks. There are bonds, commodities, options and one little known to the public, there are penny stocks. Also known as OTC penny stocks or pink sheets. Investing in penny stocks has its pros and cons. One of its main benefits is obvious, making an incredible profit in a minimum period of time. The downside is massive loss due to unexpected and unexpected fluctuations in the market. Therefore, before investing in penny stocks, there are a number of things that an inexperienced trader should keep in mind.

You should do as much research as possible before putting money into an investment. With penny stocks, you need to find out what the stock structure and distribution is. If one person or entity owns the majority of the shares and is in an unusual account, stay away. Everything must be visible and available to the public if it is legitimate actions. You should be careful about investing your money in stocks that are primarily owned by a few investors. If you invest in something like that, you can bet that as soon as the stock goes up it will be sold and you will lose all your money. It is preferable that you choose a stock with a large number of investors.

It is extremely important that you do your background research on penny stocks. You should contact the company by email or the best way is to call them on the phone. Do not hesitate to call a company to find out your finances. The big brokers do this every day on Wall Street with major corporations. You’re on the lookout for scam companies, so even if someone answers the phone, it doesn’t mean you’re out of harm’s way. Double check the number to see who says the phone company rents it. Try to find business listings for company officials. Contact them if a number is given. If you can’t find any of this information, DON’T INVEST in it. is a gotcha

When you finally find a stock that you think has potential, check everything again. Look at the current history of the company and find out what its long-term history is as well. See if they have a promising new product or service that will make the company worth more. Search for press releases or company news. Check the company’s history for reverse splits or reverse mergers, which usually point to a poor financial decision by the board of directors. Try to find a company that has a long and successful history. For a long time, since this is a penny stock, it’s not going to be decades, it’s going to be a few years. If a company is decades old and still a penny stock, it’s a loser.

As in all investments you must realize that you can lose. All investment vehicles have risk. The risk of penny stocks is higher because there are so few stocks and fewer investors. Your personality and the amount of money you are willing to invest and lose are part of who you are. Choose an amount you can afford to lose, never bet the farm on investing.

Since most penny stocks are startups, they generally don’t have a definite income stream. They are starting something new and developing their sources of income. Discovering current income streams and reliable finances is the challenge you will face, but you need to spend your time before investing a single dollar. Most penny stock prices move on speculation. In order to determine which penny stocks will prosper, you may want to use alternative research strategies.

The best alternative research strategy is a newsletter. Choose one with a winning and documented record. There are several out there that specialize only in penny stocks. That is the best option until you develop the knowledge yourself to be able to determine all these specialized skills.