If you are relatively new to penny stocks trading, chances are you will be faced with a lot of terms that you are not familiar with. In order to be better informed, here is a list of different terminologies that you might come across when you are dealing with penny stocks.
Penny Stocks refers to the stocks being offered with share prices below $5. Penny stocks can traded either on pink sheets or nasdaq. A real penny stock will not have a significant operating history and less than $4 million in tangible assets. Penny stocks may also be called small cap stocks, mirco cap stocks or nano caps.
Stocks form of equity capital which is raised through the sale of shares
nasdaq a system developed by the national association of Securities Dealers or nasdaq which facilitates trading by providing information for broker-dealers on current bid and ask price quotes from listed stocks and over-the-counter stocks.
Otc market Penny stocks are traded on the otc market and not on the stock exchange. Also known as over-the-counter market
Otcbb also known as otc Bulletin Board. This is an electronic quotation system which displays information for over-the-counter equities which are not listed in the nasdaq. Examples of such information are: last-sale prices, real-time quotes and information about volume.
Pink Sheets formally known as pink quotes. It is an electronic quotation system operated by Pink OTC Markets which displays quotes from broker-dealers. Companies usually quoted in the Pink Sheets are those that are thinly traded and extremely small. Pink Sheets are not like the Stock Exchange where companies need to fulfill requirements in order to get in.
Broker-Dealer refers to a company that trades the securities of its customers for its own account.
Agent the person who is acting in arranging the transaction between the principal and the third party
Commission fee that is paid by the principal to the agent for arranging the transaction
Bid price the amount which a person is willing to pay for a security; also refers to the price you can sell your shares
Ask price the amount that someone is willing to sell their securities for
Spread refers to the difference between the bid and ask price of an asset
Quotation also known as a quote. Refers to the lowest ask price or highest bid placed on a security at any given time
Of course, the different terms provided above are just a small pool of the common terms that people use when it comes to investing in penny stocks. Remember to always educate yourself with good, quality information which can be your main advantage in the buying and trading of penny stocks. Also, before you jump into the investment bandwagon, keep in mind that you will definitely lose money that is why key decision making is important.
To be a good investor, you must also have proper timing. You should know which stocks to buy and what stocks can be sold at a certain time. The penny stock market is very volatile and it is always changing. Make sure that you are updated all the time when it comes to new real-time information.