Penny stocks are a volatile investment. The SEC considers any stock that is trading for under $5 per share to be a penny stock. Because of this definition, many new companies fall under this classification.

Staying up to date on penny stocks news and trends ensures that you can make an informed decision about your investment portfolio. Consider the following suggestions to help you stay penny stocks savvy:

1. Know the current trends of penny stocks, including stocks listed on the hot penny stocks listings.

2. Make the best decisions about when to buy and trade penny stocks by subscribing to RSS feeds and newsletters.

3. Avoid falling victim to fraudulent penny stocks investments.

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Stay up to date on the latest penny stocks trends

If you are investing in penny stocks or thinking about buying penny stocks, you should make sure you know, and understand, what is going on with penny stocks. If you buy penny stocks online, you should check the stock ratings from a reputable company that doesn't have any interest in the stock to ensure that you are getting accurate, unbiased information.

I recommend: Investopedia offers up to date information about the trends occurring in the penny stock market. You can find articles about the history of penny stocks and how to pick a potentially profitable penny stock. You can find updated lists of hot penny stocks listed on the NASDAQ on AllPennyStocks.com.

Read news about penny stocks

Listings of penny stocks changes constantly. In some cases, stocks will stay on penny stocks listings for only a few hours. In any case, it is important that you stay up to date on penny stocks news so you can buy and trade penny stocks when your portfolio will benefit the most.

I recommend: Today's Financial News offers daily updates about what is going on in the penny stock market. You can subscribe to receive updates via RSS feeds. PennyMarkets.com offers a penny stocks blog to help you stay in touch with what is going on in the penny stock market.

Know the current scams associated with penny stocks

Because the majority of penny stocks are trading on largely unregulated exchanges, scams run amok in regards to the stocks. Another problem with penny stocks is that some companies will only trade on the list of penny stocks as a last ditch effort to raise money when they are in financial danger.

I recommend: Rollercoaster Stocks offers a report on the most common scams that people unknowingly fall victim to when considering penny stocks. TheNewsGate.com offers examples of common penny stock frauds. This website also has an email newsletter subscription service that alerts you when new scams or frauds concerning penny stocks are reported.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Never buy penny stocks from a broker that cold calls you or sends you unsolicited emails about a stock. This is usually a sign that the company associated with the stock is in serious financial trouble.

Penny stocks can be highly profitable; however, they can be highly speculative. Information about penny stocks is not as available as information on stocks that trade on AMEX, for example. Also, trading activity doesn’t occur as frequently compared to stocks such as Dell or IBM. They’re not as liquid. If you have a lot of money wrapped up in a penny stock, and heavy selling occurs that day, you can lose a significant amount of money because the penny stock may or may not recover.

You also won’t find listings of penny stocks in financial publications, so you'll need to look for other sources. If you intend to buy and sell penny stocks, here are three steps you should take:

1. Sign up with a broker to buy penny stocks online.

2. Use financial websites to help you decide when to buy and trade penny stocks.

3. Use over-the-counter (OTC) Bulletin Board and Pink Sheets to get listings of penny stocks.

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Sign up with an online broker for buying penny stocks online

You can buy penny stocks online and save on commissions. Online penny stocks discount brokers will also provide you valuable information on penny stocks. Gain crucial information on the company, such as news, fundamentals and earnings. You can also use charts for timing and investing in penny stocks.

I recommend: Buy penny stocks online with either TD Ameritrade or optionsXpress. They'll provide information on penny stocks such as charts, earnings, or price per earnings ratio. Both of these online brokers charge low commissions.

Buy and trade penny stocks by using recommendations of financial websites

Use these online publications to help you discover what penny stocks you should buy. These are valuable resources because they focus specifically on penny stocks. You will find essential information, such as an explanation of penny stocks and what companies have potential high earnings. These websites provide market research, much like Morningstar.

I recommend: You’ll want to register at PennyStockInsider.com, which is only available to subscribers. Pennystockinsider.com picks the top companies, based on their management, fundamentals, and debt levels. FutureGems is an independent electronic publication that profiles small companies. It also tells you in which companies it bought shares.

Use OTC Bulletin Board and Pink Sheets for listings of penny stocks

These are two websites you'll want to visit frequently. You can find objective information to help you make better trading decisions on penny stocks. These websites give you the bigger picture of the penny stock market. If you want to research a particular company, you can type in its ticker symbol and get information such as insider activity.

I recommend: OTC Bulletin Board is like NASDAQ and AMEX, where you can check on the market's overall health. You also can obtain overall information about penny stocks. Click on a stock and call up detailed information on the company. You’ll also want to check out Pink Sheets. This website will give you similar information to what you’ll find on OTC Bulletin Board; however, you'll find a different list of penny stocks.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Talk to companies' investment representatives, whenever possible, to get more information about what they do, and their products or services. When investing in a speculative field such as penny stocks, you need to be comfortable with the representative who is handling your money. You also need to be aware if the company has any vested interest in promoting a certain stock.

Penny stocks are defined by the SEC as companies that are trading at under $5 per share. Because many of these companies are just starting out, penny stocks are sometimes a volatile investment.

It is common for people who are new to the stock market to start by investing in a few penny stocks. For these investors and seasoned investors, you must consider the following penny stocks basics before handing over your hard earned cash:

1. Think hard about the decision to invest in penny stocks.

2. Familiarize yourself with penny stocks terms and jargon.

3. Consider the type of penny stocks you want to invest in by taking a look at your investing preferences.

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Understand the risks before you buy and trade penny stocks

Investing in any stock is a risky venture. Because of the lack of history and information about many penny stocks, investing in them involves an even greater risk than normal. Familiarizing yourself with the risks, including scams, lessens the risk of falling victim to here today and gone tomorrow penny stocks.

I recommend: Investopedia offers information about the risks involved in trading penny stocks, especially if you buy penny stocks online. PennyMarkets.com offers articles, blogs and other information to help you decide if investing in penny stocks is beneficial to your stock portfolio.

Learn the jargon associated with penny stocks

Financial terminology can be difficult to understand. When you are speaking with a broker or marketer for penny stocks, you may find that you don't understand everything said. For this reason, it is vitally important that you learn penny stocks jargon prior to considering any investment opportunities.

I recommend: Rollercoaster Stocks offers a list of penny stocks terms with easy to understand definitions, which is ideal for beginning traders. ThinkorSwim.com has a comprehensive dictionary of stock trading terms, including information about penny stocks terms.

Pick penny stocks that meet your investment preferences

Buying penny stocks involves doing a vast amount of research yourself to find the hot penny stocks out of long listings of penny stocks. There are numerous factors to consider prior to shelling out any money for penny stocks. You must consider the outlook of the company industry, your financial state, the amount of information available about the company and the way you learned of the stock. In some cases, there are many other considerations.

I recommend: Today's Financial News offers 10 tips to help you choose legitimate penny stocks that will minimize the risk to your portfolio. TheNewsGate.com offers articles to help people new to penny stocks understand how to protect their portfolio when choosing penny stocks.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Think twice about investing in penny stocks over the phone, especially if the broker or marketer cold called you to tell you about the stock. Legitimate companies offering penny stocks usually don't cold call people to invest in the company.

Penny stocks are common stocks. However, they don’t trade on exchanges, such as NASDAQ. In fact, institutional investors tend to avoid them because they don’t have much value and there is not much information about them. Penny stocks are also highly volatile because the price can be extremely high one day and take a nosedive the next. However, investors are attracted to penny stocks because they’re cheap and promise much growth. Here are key terms to know about penny stocks.

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Penny stocks

Penny stocks are common stocks that trade for less than two cents per share. Known for their low prices and small market capitalization, these stocks are not listed on the major stock exchanges, such as NYSE, Euronext or NASDAQ.

I recommend: Investopedia provides comprehensive information about penny stocks.

Over-the-counter bulletin

Over the Counter Bulletin Board (OTCBB) is a quotation service that consists of small companies that don't have the capital to be listed on NASDAQ or NYSE. Every company that is listed on OTCBB has to report financial information on a regular basis.

I recommend: Penny Sleuth provides a good history of how the OTCBB came to be. Scroll down to the Penny Stocks: OTC Investing segment.

Pink sheets

Like Over-the-Counter Bulletin Board (OTCBB), Pink Sheets is a central quotation and trading system that gathers and posts real-time market maker quotes for the OTC (over-the-counter) market. It's not an exchange, but more than 200 financial services businesses trade on this system. Penny stocks make up a large part of this trading system.

I recommend: Get more in-depth information on how Pink Sheets work by checking the website.

Volatility

Volatility is the comparative rate at which the security's price goes down or up. If the security's price drastically increases or decreases in a short period of time, then it's highly volatile. On the other hand, if it moves very little, it has low volatility. Penny stocks are highly volatile.

I recommend: Go to Best Way to Invest and read why and how penny stocks are highly volatile. Scroll down to the volatility section.

Liquidity

Liquidity involves being able to quickly convert an asset into cash without losing any value. Penny stocks are not known for providing liquidity because they don't have much value to begin with.

I recommend: Money-Zine discusses the relationship between liquidity and penny stocks. Scroll down to the "penny stocks can be speculative" section.

Manipulation

Manipulation occurs when investment companies, brokerage firms or owners cause the stocks to go up or down. This impacts the penny stocks' value. Penny stocks are prone to manipulation.

I recommend: AllStocks provides in-depth information about how people can manipulate penny stocks.