So the SEC defines a penny stock as one that trades below $5. Yes, you’ve read that correctly. For whatever reason, when some people think about penny stocks, they automatically think of shady companies trading under a buck. But you know what? There are “penny stocks” that are listed on the NYSE and Nasdaq. That’s right, they are trading on the same exchanges as your everyday blue chips.
And you know what else?
I’m up over $350,000 in 2016 (with a month still left), and a lot of those profits have come primarily from trading penny stocks. Trading penny stocks is not only for small timers. In fact, as I have proven, serious money can be made, if you have a solid game plan and the confidence to execute it.
But what about those sketchy companies that do backroom deals? You know, the ones like in the movie Wolf of Wall Street. Look, even “legit” companies can be found to be not so legit. One only needs go as far back as 2016, and take a look at the story of Valeant Pharmaceuticals International, Inc. (VRX). It seems like there’s been one scandal after another, the most recent was a federal investigation on potential accounting fraud. The company’s stock price was trading above 250 bucks in the summer of 2015, and is now down more than 90% since then.
With that said, there are some penny stocks that don’t trade on the Nasdaq or the NYSE. These are referred to as pink sheets and are traded “over-the-counter.”
What’s the difference?
Check this out…in order to get listed on the pink sheets, all you need is to submit a form. You don’t even have to fully disclose your company’s financial statements.
According to pink sheets requirements, they are under no obligation to disclose all of their financials.
Want to hear what else is wild?
These companies don’t even have to file annual reports.
My friends, that is called the wild wild west. Now, if you’re watching movies, westerns are cool… but trading in the wild wild west is not. I’m all about taking calculated trades, in which the risk-reward is heavily skewed in my favor. If I don’t know much about the company I’m trading, I’m more or less in the dark…a place I don’t want to be. I’d much rather be in control.
To wrap it all up, penny stocks are not just companies trading for a buck or less. In fact, they are stocks that are trading $5 or less. I only trade penny stocks that are listed on either the NYSE or Nasdaq. The reason being: these exchanges have high standards, in terms of capital requirements, financial reporting and transparency. Pink sheets are penny stocks that are traded off the big exchanges and have extremely loose requirements to get accepted. Not only that, but they don’t even have to file annual reports.
As a trader, I’m going to go to where I believe the best opportunities are. For me, judging by my profits to date, it’s been in penny stocks.