Top Penny Stock Questions

These Are The Most Common Questions Most People Have About Penny Stocks

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These are the most common questions about penny stocks.  Anyone can get started trading penny stocks, whether you are a beginner or an experienced investor.  

You just need to know how to find the high-quality companies which are overlooked and undiscovered, and avoid all the scams and risks that are out there... (because there are a lot of them)!  The answers to some of these most common penny stock questions may help as you proceed.

What are penny stocks?

Penny stocks are those shares which trade for less than five dollars.  Some trade as low as a fraction of a single penny per share, although most trade for a few dollars.

Where do penny stocks trade?

Penny stocks trade on all the major markets (NYSE, AMEX, NASDAQ) and on the bulletin board (OTC-BB). There are plenty of well-known, high-quality companies trading on these exchanges, which are trading for five dollars per share or less.

However, the majority of penny stocks trade on the dark markets, such as the Pink Sheets, the OTCQX, and the OTCQB.  This should be considered the wild west of penny stocks.

The vast majority of low-priced shares on these risky markets have terrible financial situations.  Many are bankrupt, very close to bankruptcy, or are being run horribly poorly.  As well, the listing fees and reporting requirements are almost non-existent on these dark markets, which is why so many questionable companies find themselves at home there.

The first step with trading penny stocks is to avoid any shares that are trading on the dark markets.  Instead, focus on those high-quality penny stock companies which are trading at low prices, simply because they are overlooked, or undiscovered, or new businesses.

Are penny stocks risky?

Yes, they are.


They are more volatile than most higher-priced shares as well.  However, this is also why they can sometimes help your investment dollars multiply in value so quickly.

In addition, more good news is that you can limit a lot of the risk.  For starters, remember the number one rule with penny stocks - never follow free stock picks.

There are so many scammers, and pump and dump artists out there, who will try to manipulate the prices of penny stocks.  They will mislead unwitting investors into buying shares, regardless of how good (or horribly bad) of a company they are promoting.

Anytime you hear about a stock pick for free, you're probably falling victim to one of the promoter's scams. This even includes if you hear about a penny stock from a trusted friend or coworker around the water cooler - they are just another unwitting victim of this pump and dump scam too.  

Your coworker probably heard some rumor about the next hot stock through the Internet, and tells you all about this great, up-and-coming investment.  He'll do all that without realizing that the rumour actually originated (and was fabricated) from the pump and dump artist himself!

Can penny stocks really increase in price a lot?

Yes they can, and I've even personally found penny stocks which have gone from 40 cents to $40 dollars per share!

 I've also profiled plenty to my subscriber base which have ballooned 10 times over in value, and sometimes even more! 

If you get involved with the high quality companies, and then give them time to grow into bigger businesses, this can often turn a small investment to something much more significant.  This will probably be a meaningful event, which could be a big deal for you and your investments.

Was Microsoft ever a penny stock?

No, it was not.  MSFT started trading at $21 per share in 1986.

Microsoft just appears like it started as a penny stock when you look at long term trading chart, because it adjusts for splits over the years.  There have been plenty of stock splits in Microsoft, and each time it seems to reduce the original value of the shares.  

For example, a 3-for-1 split would make a $3 stock seem, on a long term chart, that it began trading at $1.

 Now, imagine if the same shares were split 2-for-1 several times, and even 3-for-1 on a couple occassions...  The historical value would appear as a fraction of what the shares were actually trading at in the first place, many years ago.

Can I get rich from penny stocks?

It is possible, but anyone who tells you that you that is probably peddling smoke. A lot of people will claim you can get rich from penny stocks, but will fall short when tested (especially once they have gotten your money)!

However, there are plenty of cases of penny stocks which have made their investors very rich within years, or even months or weeks.  The best way to find high-flying shares like those is to uncover the really high quality companies before the crowd, then watch as the business grows organically, and your investment becomes much more significant.

What is the best way to find high-quality penny stocks?

At, we start by screening out all the garbage and bad stocks from among the thousands and thousands out there. Then we fine tune our stock screens, to remove any "undesirable" types of businesses;  based in sketchy locales; operating in offensive businesses; holding companies; facing significant lawsuits; operating in shrinking industries; weak financial positions; bleeding cash.

Then, and this is the hard part which can only be done by a full team, we go through each remaining company on the list.  We quickly assess if each penny stock might be worth a more comprehensive review (and so should be added to our Stage 2 shortlist), or otherwise we cross it off our list.

For all the companies which make it to the next stage, we give them a thorough and granular review.  This involves looking at their debt loads, professional investor ownership, financial ratios, market share, revenue trends, balance sheet, cash flow statement, and much more.

Of those which we find compelling, we may move them to our Stage 3 shortlist, in which case they will be given a full and complete Leeds Analysis review, as I explain in this video.

What is the best was to research and review a penny stock?

We found the best approach is what we call Leeds Analysis, which is 80% fundamental, 10% technical, and 10% "third level analysis."  Fundamentals show you the quality of the company as a business, while the technicals help indicate the best buying and selling prices of the shares.

Third level analysis is about assessing how effective the marketing campaigns are, as well as the business branding and perceptions.  We also look at the connotations of the company, and the overall industry.

How do I know if a service gets paid by the companies which they discuss?

This is absolutely very important when it comes to penny stocks.  Almost all stock pickers, newsletters, and services will get paid by the companies which they talk about, either in the form of kickbacks, bribes, or shares.

Only trust services which come with a 100% unbiased guarantee, ensuring that they have your best interest at heart.  You need to know whether or not they take any compensation of any kind in exchange for coverage, from the companies which they talk about.  Very unfortunately, most services will engage in such selfish and unethical practices!

Which is the best broker for penny stocks?

Some brokers do not allow for trading in penny stocks. Others charge an extra fee.  However, there are several brokers which have no additional costs or constraints when it comes to low-priced shares, and we discuss them in our official discount broker ranking and review report.

So... once you find a broker which does not have any extra fees for trading penny stocks, you need to decide which type of features you like best. Some have no minimum required to open an account, some have really great online tools, and many got excellent marks in terms of customer service.

Only you can decide which online discount broker best meets your needs, based on what is most important to you.  You can see which brokers charge extra fees for trading penny stocks, and which don't, as well as which brokers do not even allow for trading penny stocks at all, in the broker rankings report.

As a side note, since we compiled the data, the Robinhood app has come onto the scene.  If you haven't heard about them, they are a commission-free stock brokerage application for your smart phone.

While it is still early, there have been mainly positive reviews, with a few from people who are not completely satisfied. I provide a complete assessment of the Robinhood app in this video.

How can I protect myself from downside risks?

There are plenty of ways in which you can protect yourself from downside risks in volatile and low-priced investments.  The great news is that most of them are quite easy to implement, and you can use them right away.

Of all tactics to avoid losses in penny stocks, one of the most effective is "stop loss" orders.  While the concept is actually quite simple, it is best described through a video, or in its own article, such as this one which I wrote.

I'm ready to get started. How do I go about that?

Assuming that you've already started by paper trading so that you learn the ins and outs of trading penny stocks, then it might be time for you to proceed into investing real money.

The first thing you need to do is decide how you will find various penny stocks for potential investment.  This might involve reading the news, purchasing a paid subscription newsletter, doing online research, performing your own stock screens to make short lists, or even watching mass media broadcasts like Jim Cramer or CNN.

However, the most effective approach typically involves doing all of the above.  Keep your eyes open, watch the shares you are interested in for a while before you buy, and gravitate to those industries or businesses which you understand.

Regardless of the details of how you proceed, the absolute best solution is to make sure you learn how to do all of it on your own, rather than relying completely on any guru, newsletter, or TV personality.  I am showing you how to find the very best penny stock companies, and the way in which my team and I proceed, in this special video tutorial.

So, lean on others to get pointed in the right direction.  Lean on my to learn how to be successful with penny stocks.  Yet always make your own choices, taking full and total responsibility for each and every trade you make - this is the best way.  After all, when dealing with the penny stock industry which is full or cheaters, con-artists, and fools, you will always know that you can fully trust yourself!