I remember vividly two of the stocks my father bought on the recommendation of the newsletter - West Midlands engineer Benjamin Priest and Dublin-based oil explorer Tuskar Resources. The former was taken over several times, although we made hardly any money, while the latter went bust following the failure of an oil deal in Nigeria.

This type of tip sheet still exists, although these days you're more likely to subscribe online than wait in for the postman to deliver. Continued improvements to the internet over the past 25 years have also made it much quicker and easier for investors to do their own research. It's part of the reason why investors love this end of the stock market. There's still a perception it is where fortunes are made.

And it can be. But it is where your money can quickly vanish.

Many penny shares are often loss-making, or at least do not make very much, often consisting of little more than a hole in the ground, some untested technology, or an idea and some start-up cash.

In the FTSE Aim All-Share index there are currently companies whose shares are trading at less than one penny. More than stocks change hands for less than 10p, and well over trade at under p. Even in the FTSE All-Share there are more than 50 companies whose shares trade at less than p. Of course, every company has to start somewhere. GlaxoSmithKline began as a pharmacy in eighteenth-century London; Lloyds was a private banking business in Birmingham at around the same time, while BT was born a few decades later.

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And there are more contemporary examples of rags to riches stories. The hugely successful high street fashion chain Nextfor example, traded at around 13p inand countless big names - think Lloyds, Royal Bank of Scotland and GKN - plunged to unheard-of lows during the financial crisis: However, the companies we commonly refer to as penny shares are the minnows.

There will inevitably be failures - at least in terms of returns for shareholders - but what draws investors back to the casino end of the market is the prospect of picking the one that makes it: And it does happen.

Wearable fitness device company Fitbug did just that, as recently as October last year. Having done almost nothing for four years, and trading at just 0.

There are many more examples of penny share successes in recent years - check out Crawshawup 2, per cent, Trakm8up per cent, and Safelandup per cent. So, there's a fortune to be made if you pick a winning horse, but the list of losers is longer.

These tiny companies should come stamped with a huge health warning. Many never amount to much, while others run out of cash and disappear. Even the former stars can come a cropper. Fitbug is currently trading at 6. And African Minerals is a lesson to all penny share investors. Founded by controversial entrepreneur Frank Timis, it was the biggest employer in the West African country. But some colourful forecasts and a plunge in iron ore prices brought the firm to its knees.

It eventually went bust in March this year. Clearly, the downfall at African Minerals owed a lot to mismanagement, but it does raise the issue of what can go wrong even once the hard work has, seemingly, been done. Indeed, often there is little by way of fundamentals to hold up the share price of many penny shares after a meteoric rise; it's just investor optimism. These companies cannot afford to miss forecasts. Investors often end up owning penny shares longer than they perhaps intended, especially if they want to turn a philippine stock trading seminar. True, many buy for the long term, preferring to stick them away in the hope they might one day become the next GlaxoSmithKline.

That's fine, but speculators can help cause wild gyrations in share prices. Understandably, penny share prices get over-excited on good news.

New buyers chase the shares higher for a period before the inevitable sell-off begins. The rally can be over as quickly as it began, as in the case of Fitbug. This happens for several reasons. First, some investors will have got in at much lower levels and will be willing sellers at higher prices. Market makers may also try and shake out sellers by marking the shares lower.

Buyers then move in at cheaper prices. It's great two-way business for market makers. Many penny shares - and not just mining and oil stocks - make little or no money. Runecrafting how to make money contract win here, a deal done there, can therefore have a significant impact on profits.

Valuing a company's shares is difficult enough for large companies, but valuing penny shares is almost impossible - buying Fitbug at, say, 6p was a great trade when the shares hit Penny shares are traded like any other share, and are almost always quote-driven prices - a buy and sell price given by one or more market makers share prices for larger, more liquid companies are typically order-driven - investors' own buy and sell orders create a natural two-way quote.

For penny shares, however, this is impractical, given the liquidity issues that plague many listed smaller companies. Many are still owned by the founders who control a chunk of the shares.

Fewer shares in circulation typically means market makers will quote wide spreads, yet even small buy or sell orders can still move a share price quite sharply. It may even be impossible to deal at anything like the price being quoted by the market maker. Take a look at Gate Ventures if you're unsure. It listed at 10p a few months ago, but the shares now trade at almost p. There are some other sniper forex trader v2.rar at Gate, but brokers tell me there's a severe lack of stock, which means the market makers will not price the shares lower.

Penny shares are clearly not for widows and orphans. If you want low-risk returns and reliable income, they should be treated as off-limits.

However, for investors with an appetite for risk, small company shares should not be discounted entirely. Despite the long list of losers, enough decent companies exist on Aim to make further investigation worthwhile. Yes, there is a shortage of publicly available research on many penny shares, but it is wachovia enhanced stock market fund a to unearth reliable information from company statements and press reports.

Try the company website, too. If you do decide to take the plunge, never invest more than you are willing to how to earn money with shares trading, and make sure high-risk assets make up only a small portion of your investment portfolio. Small companies may have shorter trading histories, but track down as much information as you can, and be sure to pick through at least the most recent set of accounts.

Some tipsters do an honest job; best uk penny stock broker are less scrupulous and clearly attempt to ramp bad companies.

They should be avoided. Buy the shares of companies with a reasonable trading history, which make how to earn money with shares trading and can demonstrate some level of growth. Failing that, look for potential at the very least. Becoming emotionally attached to a stock is one of the most common reasons why investors lose money on small-cap trades. Do not que tan rentable es invertir en forex disabled by blind faith.

It's never output on binary options uk broker to lose money, but if a trade is going wrong, limit the damage. However, wide spreads and extreme volatility can make it tricky to execute.

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Trading tiny stocks with little, if any, volume can make it more difficult to close out positions. There are hundreds of penny shares, but not all will be suitable for every investor. Stick to sectors or a particular type of company that you feel most comfortable with. Knowing when to sell a share, large or small, is hard.

Remember, it's never wrong to take a profit. Often, penny shares are short-term trades, too. Penny shares should only ever make up a small percentage of an investor's overall portfolio. Over-exposure increases risk and ties up capital. This is high-risk, high-reward stuff, and investors should never invest more than they can afford to lose. Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

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