The trick to finding the best penny stocks!

One of the hottest ways to make money in the stock market is taking a chance with what is known as "penny stocks" - shares that have incredibly low prices in the hopes that they jump up. There's the potential to make some huge dollars so let's have a look at what makes the best penny stocks.

Obviously there's a risk to investing in these stocks. The companies behind them aren't "in the big times" yet and run the risk of going under. The best penny stocks, for obvious reasons, are ones that have been properly researched.

Choosing penny stocks in a reasonable fashion means having the business model of the company selling them independently appraised. This is like buying shares in any other company that's being publicly traded. It's important to understand the company's business model, what they're doing, who's competing with them, what they make and what products are being offered.

The thing that makes penny stocks so appealing is that most businesses offering them are actually extremely simple. One typical example of a penny stock company is that of a mining company that profits only when the price of the material it extracts reaches a certain number. There are also a few oil exploration stocks that are valued in this way. The best penny stocks in terms of performance seem to be the ones that react to the price of an external commodity.

Penny stocks are rated as a high risk vehicle by the Securities and Exchange commission. Some of the risks you'll encounter when dealing with these stocks include incomplete and indirect financial reporting, limited liquidity and even complete fraud. People who are playing with a day trading strategy will find that sudden demands for penny stock creates enormous volatility. Penny stocks are hard to short sell for this reason.

The financial reporting guidelines on the best penny stocks are actually pretty loose. Unlike the national exchanges, not much is required of companies that list this way - in fact, sometimes these stocks will just de list for a few days! In the investment type called Pink Sheets, penny stocks have nearly no regulatory requirements at all, including few to no minimum accounting standards or reporting guidelines.

Because these stocks aren't standardized and don't have an generally accepted requirements for accounting, they can be extremely vulnerable to being manipulated or even just plain fraud. People posing as independent observers can encourage people to run up the price, then they sell and de list the stock. This is the classic pump and dump scam.

Of course, that doesn't mean you should never invest in penny stocks. There are lots of real, legitimate startup companies out there, and they need to have a good place to get up and running. If you're able to pick a winner, you'll get an impressive return.

If you're able to find a company with lots of promise, you could get an enormous payday. The best penny stocks will land you a massive gain on your money! Even if you lose four out of five of your picks, the single winner you get will give you enough to forget about the other losses.