Hot penny stocks are those stocks that trade from .001 of a penny to $5.00. They are extremely risky yet they have remarkable reward potential. Penny stocks are referred to as over the counter stocks because they are listed on the Over the Counter Bulletin Board.
To qualify as a penny stock, the stock must meet four criteria.
- The stock must be priced below five dollars.
- The stock is not traded on a national stock exchange or on the NASDAQ.
- The stock may be listed on the “pink sheets” the NASD or the OTC Bulletin Board as explained above.
- Lastly, the company that issues the stock must have less that $5 million in tangible assets and must only have been in business less than three years.
Many investors buy penny stocks considered “hot penny stocks” because it does not take a large investment to get started. They give the average investor the opportunity to obtain a significant number of shares without having to invest a large chunk of their hard earned money. In other words it provides the successful trader the ability to turn a relatively small investment into a large fortune. This is precisely why hot penny stocks are so popular. The downside of course is that the volatility of shares and the lack of corporate transparency that can quickly make a penny stocks worthless.
It is important to note that the true value of a company and the price of their hot penny stocks are not always necessarily indicative of each other. In fact, most penny stocks are at the developmental stages and have been overlooked by the investment community for reasons unknown. While this has given penny stock investing a bad reputation, there are those penny stocks that truly represent a legitimate investment opportunity. Those are the best penny stocks that you need to find! There are actually studies that show that many companies have standards that they must meet before they are allowed to be traded OTC. The ones that you must watch out for are the companies that are unethically managed. These are the so called hot penny stocks that that are promoted and then quickly sold off to make a profit. By the time naive investors have bought them, the hype has worn off and they cannot sell them. Watch out for these schemes!
There are also those situations when companies are well established and are still considered to have hot penny stocks. These are companies that are truly trying to grow so that they go above the penny stock status and can potentially be traded on the NYSE or another major exchange. These businesses truly opt to increase their customer’s value in the stock market.
Hot penny stocks contain an element of risk just like any other type of investment. The point is that you must build your list of penny stocks very carefully. Do as much research as you can, and think twice before investing in a hyped up penny stock. There are penny stocks worth investing in, but it is up to you, the investor to find them.
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