Chapter Five: Getting to Know Wall Street

Written by dzi11

Updated 12/8/2020 4 min read

Getting to know Wall Street

It’s a challenge getting to know wall street. Okay, I know you’re anxious to get started with penny stocks, but there’s one last set of concepts and terminology that we need to cover before we can set you lose in the trading world.

In this section, we’re going to discuss a number of different topics related to Wall Street and investing. Again, I know that drilling words and phrases isn’t the most exciting part of this process, but your education is vital. Never underestimate the power of education. Take the time to study these concepts and learn them well. Your future success as a penny stock trader depends on it.

MARKET EXCHANGES

First, while you’re probably already familiar with the New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX), you won’t find penny stocks on these exchanges. Instead, it’s time to get familiar with some of the other different options that are out there:

THE PINK/GREY SHEETS. The pink or grey sheet exchanges are where you’ll find the tiniest of all publicly traded companies. They’re very volatile, and they’re not usually liquid enough for pennystocking. Nearly all the companies on these exchanges trade under $5 dollars a share, but for our purposes, they’re usually not ideal due to their lack of liquidity.
THE OTC BULLETIN BOARD (OTCBB). This is an electronic trading exchange for non-NASDAQ listed companies. Usually, the stocks found here have decent liquidity and volatility, and they rarely trade over $5 dollars a share. This makes them very good for pennystocking purposes.
THE NASDAQ SMALLCAP MARKET is my single favorite market of all time. This is the NASDAQ of penny stocks. These stock trade between $1 dollar and $10 dollars a share—it’s just beautiful, because these stocks are extremely liquid and they usually trade millions of shares. Sometimes, they get up to 10 and 20 million shares traded in a single day, and they’re very volatile at the same time. This exchange simply must be on your radar for pennystocking.
THE NASDAQ NATIONAL MARKET, not so much. This is all electronic trading and it’s mostly technology growth-oriented stocks, but they’re all pretty much higher priced stocks. This makes it irrelevant to pennystocking, for the most part.
THE AMERICAN STOCK EXCHANGE (AMEX).On this exchange, you’ll find tiny companies that tend to be volatile, but that still aren’t ideal for pennystocking because they have large price spreads and they’re generally illiquid. These companies may be trading at $3 dollars a share, but even if you want to buy in at $3 dollars, the spread might be too much from $3 dollars by $3.50 dollars, leaving you stuck buying in at $3.50 dollars. Even small changes like this can mean disaster for your profits.
THE NEW YORK STOCK EXCHANGE (NYSE) is the largest exchange in the US, and it’s considered to be the most reputable of the bunch. Here, you’ll find your higher-priced stocks—your GEs, your Johnson & Johnsons and your Bank of Americas. There’s almost no volatility here, which—combined with the higher prices—makes it pretty much irrelevant to pennystocking. A lot of people ask me, “Oh, what do you think about this company—it’s traded on the New York Stock Exchange?” I ignore it. That’s what it comes down to.