Penny StocksPenny stocks may not look much to some investors out there, but there are also some considerable opportunities that it can offer, provided that the investor knows his way through investing in such stocks. Along with the profit opportunities also come considerable risks. To give you an idea, here is a brief look at penny stocks.

Penny stocks in the US are common stocks that are being traded for less than $5 a share. These stocks are usually traded in what is called as the "Pink Sheets". It is an electronic quotation system that displays quotes of stocks for many over the counter or OTC traded securities. It is through the Pink Sheets that penny stocks bids and quotation prices can be published by broker dealers. But in addition, interested brokers should know that the Pink Sheets is not a stock exchange and is not registered in the US Securities and Exchange Commission. Companies with stocks quoted in the Pink Sheets are not obliged to fulfill any requirements or reports to the Commission.

Penny stocks are usually stocks issued by companies with small market capitalization. With this in mind, investors putting their money on penny stocks are setting their sights on small companies. This type of investments generally are viewed by many as a pretty risky proposition, putting up invested capital on some unproven small company. But this does not mean that investing in such small companied would eventually turn up on the losing end. There are many small companies out there that shows promise and may have good chances of making it big. Sometimes, the "next big thing" or the next great innovation may come from these small companies.

The key to investing in penny stocks is by thoroughly analyzing the small companies that issue them. Most investors are attracted to penny stocks primarily for the low stock prices and rapid growth potential. Some penny stocks, due to their low price can at times be seen increasing prices by several times its original value in a matter of days. But this price changes tend to be very volatile that most investors consider penny stocks to be very high risk investments. The key to successful investing in penny stocks is prior knowledge and careful analysis of the small companies eyed for their penny stocks.

In order to lessen the risk of investing in penny stocks with its accompanying risks, investors are better off investing funds that they would not bother losing. Investors should avoid putting up essential funds for investing in penny stocks. Setting aside a certain amount considered to be "disposable funds" would be the safest way to go investing in such risky stocks. When the stock rises, it would be a welcome news and investors profit some. But if the penny stock price suddenly crashes, investors would not be a bit bothered, considering that money invested is considered "disposable". That is the best way for investors to invest in penny stocks.