Day Trading Penny Stocks is Not For Newbie Investors

When you consider the lure of day trading penny stocks, remember that with this narrow field of investing you're combining two of the most risky and challenging fields into a single great leap of investing boldness. Until recent years with the advent of electronic trading, day trading was solely the practice of the most experienced of stock brokers. And penny stocks still involve some of the most manipulated speculative stocks on the market.

Day trading involves buying and selling currencies, stocks, stock options or futures trading within the same closing day. Most day traders (also known as active traders) are employees of major banks or investment firms and have many years of rigorously-gained experience.

Penny stocks have a variety of definitions. Most in the industry consider a microcap stock - a stock with a market capitalization under $250 million - which trades for less than $5 to be a penny stock. Others believe a penny stock technically trades outside of the major exchanges (AMEX, NYSE or NASDAQ) on quotation services such as the OTCBB (over-the-counter bulletin board) or Pink Sheets (technically the Pink OTC Markets). However, the SEC (the Securities and Exchange Commission) technically defines a penny stock as any low-priced stock of a speculative nature.

The risk with day trading is that it requires having a keen understanding of a large number of companies in order to successfully execute a large number of trades in a short amount of time. Day trading requires significant capital and a vigilant sense of discipline to one's strategies. This is not something for the faint of heart and it certainly is not a get-rich-quick method.

The risks involved in penny stocks are many. Such stocks are often traded on quotation services which don't require the same standards as AMEX, NASDAQ or NYSE and aren't required to file with the SEC. Additionally, their low value makes them susceptible to securities fraud techniques such as the pump and dump and the chop stock.

When you combine these two risky, gambling fields, you get day trading penny stocks. Can it be profitable? Certainly, but if you're an Internet dreamer trying to make a quick buck, day trading penny stocks is certainly not your safest or wisest option.

However, if you feel you can learn quickly and exercise the discipline to establish and maintain a specific strategy, you can earn serious money. Just don't be suckered into wild fantasies by shrewd fraudsters.