Thursday , 18 August 2022

What You Need To Know About Large, Small and Penny Stocks

This article addresses the whole gamut of market capitalizations from penny stocks to large cap stocks. Here is what you need to know.

First, let’s review the world of penny stocks:

What Are Penny Stocks?

According to streettalklive.com, penny stocks are small company stocks that are usually traded for less than $5 per share. Most of these types of stocks trade through over-the-counter (OTC) trade or through privately owned pink sheets.

How Do Penny Stocks Make Money?

Some types of penny stocks have the potential to land you around 20% to 30% in profit but the trick to getting this type of return is to sell the penny stocks as soon as you see your percent of return increase.

What Types of Penny Stocks Are There?

There can be many different types of penny stocks.

  1. Look for companies within high-growth industries, like technology or healthcare, which can indicate a company’s potential for revenue growth, which means a higher rate of return when you sell your stocks.
  2. Look for new company shares that have massive potential for growth. Watch such stocks closely and sell them as soon as you see a decent return.

Common Penny Stock Scams

There are several common penny stock scams that traders interested in this commodity should be aware of, namely:

  • The pump-and-dump scheme, where promoters of a stock fraudulently inflate the price of owned stocks through misleading promotions and positive claims.
  • The short-and-distort scheme involves selling short a company’s shares and then misleading investors with negative reviews to influence the stock price to decrease.

Conclusion Regarding Comments On Penny Stocks

Penny stocks come with a higher risk than most other stocks, as they are difficult to regulate and track through the SEC. However, don’t let that stop you from trying, especially if you use a reputable broker to help you with your trades.

Now, all about small cap and large-cap stocks:

What Is Market Capitalization?

All stocks have different market capitalizations depending on the value that investors are placing on the company at a given point in time.

Market cap refers to the total dollar value of a company’s outstanding shares of stock, and is determined by multiplying the share price of a stock by the total number of shares outstanding so, for example, a company with 60M outstanding shares selling at $20/share would have a market cap of $1.2 billion.

Stocks are classified into large (+$10B), mid ($2B – $10B), small ($300M – $2B), micro ($50M – $300M), and nano (-$50M) market cap designations but contrary to popular belief the size of a stock’s market cap does not necessarily infer that it is, or is not a penny stock. Generally speaking, all large-cap stocks trade above US$5/share and almost all mid-cap stocks do as well, and, conversely, almost all small- and micro-cap stocks trade for less than US$5/share as do virtually all nano-cap stocks.

According to Ross Cameron of warriortrading.com, small-cap stocks:

  • are more volatile in reaction to news than a large-cap company,
  • have significantly higher growth potential than large-cap stocks,
  • are generally considered to be riskier than large-caps because of less well-established business models in their respective industries and
  • may demonstrate lower liquidity than large-cap stocks, which may make it difficult to sell the stocks at a favorable price or result in the potential unavailability of the stock at a good price to buy.

Again, according to warriortrading.com, large-cap stocks:

  • are less risky and less prone to extreme swings in their stock prices,
  • have greater analyst coverage, which may result in higher demand for the stock,
  • have the potential for a steady dividend stream for longer-term hold,
  • have plenty of liquidity to get in and out of positions easily and
  • offer less potential for high returns than their small-cap counterparts.

There you have it, an inside look at what penny stocks, per se, and small- and large-cap stocks are all about.

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