Penny stocks, those traded at a very low cost, are usually priced below $5. It is said that they are also micro caps with capitalization of less than about $250 million hence capable of building vast wealth.

But that’s not always the case. If you don’t take penny stock trading seriously, you might not get the wealth you dream of. It should be noted that penny stocks are found across the wide plethora of capitalization from micro to large cap stocks.

The small investor has a straightforward edge over others when he takes an early position in a good micro cap penny stock. As a group, micro cap penny stocks are normally shunned by large funds since prices are easily affected by considerable buy and sell orders. In addition, capitalization is too small to influence a large fund’s bottom line.

Basically, high risks are expected when there are wild fluctuating prices in the market. Thus the first tip to building wealth is to invest with prudence and low tolerance limits. Second, avoid unknown companies. Sometimes ignorance of companies in very serious financial state is fatal to the business. It’s better to avoid penny stocks if you don’t have reliable information.

Another high-risk pitfall lies on the difference in how penny stocks are traded. They are confined to secondary markets. So if you’re into high liquidity in secondary markets, keep your control, and note every small tendency.

Do your homework. A good research could save you from gruesome penny stocks pitfalls.

This entry was posted on Friday, July 27th, 2007 at 8:00 am and is filed under Online Stock Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.