When invested in properly, penny stocks provide for reasonable returns on investments. Just keep in mind that these microcap shares are the riskiest investments for reasons like the high volatility of the market, the low level of transparency in the companies and the lack of stringent regulations. The good news is that these limitations can be overcome with pointers on where to find the best penny stocks and the best penny stock brokers.

Build A Strong Foundation

But first, we strongly suggest knowing what a penny stock is in the first place. It is never a good idea to plunge headfirst into an investment in which you know absolutely nothing about except for its name. Being at the losing end of the investment is never too far away when ignorance is applied to something as risky as penny stock investments.

Basically, penny stocks are shares in a company that sells for less than $5 with many actually selling for less than $1 on the market. Other definitions include the issuing company possessing less than $25 million at least and $50 at most of capitalization as well as stocks that trade in obscure markets like the Pink Sheets. It will be noted that there is actually no general consensus on what constitutes penny stocks so much so that one investor can consider something as a microcap share but not so another investor.

Know Where To Find Penny Stocks

As previously implied, the best places to find penny stocks are through specialized stock markets aside from the so-called big boards of the Chicago, New York and Tokyo stock exchanges. These venues and their brief descriptions are:

* Pink Sheets, or more formally known as Pink Quotes, is an electronic quotation system displaying quotes for many over-the-counter shares and securities. It is not a stock exchange, which means that there are no regulatory requirements for the companies quoting their shares of stocks in the Pink Sheets. As such, it is often considered as the riskiest place to find penny stocks in.

* OTC Bulletin Board (OTCBB) is also an electronic quotation system displaying real-time quotes, last sale prices and volume information for over-the-counter securities and shares. Obviously, these shares are not listed in either private (Nasdaq) or public (New York Stock Exchange, for example) securities exchanges.

* Nasdaq stock exchange now also offers penny stocks. This venue is considered the safest venue to find the most profitable penny stocks because of the high degree of regulatory activity imposed on the listed companies.

Of course, there are also good penny stock investments in the Pink Sheets and OTCBB markets. Just be sure to perform in-depth research, evaluation and analysis of the penny stocks being considered because, again, these are high risk investments.

Find The Best Penny Stock brokers

If you already have a stock broker, you can ask him to invest in penny stocks, too. Not all stockbrokers will dabble in penny stocks, however, so you may have to find another professional to do the job for you. The selection process is the same as that for hiring the best penny stock broker for the mainstream stocks being traded on the big boards.

The best piece of advice in penny stocks is always to do your homework, start in small ways and be ready for the ups and downs. With such high risk investments, following this advice will save you many headaches later on.