There are thousands of different penny stocks traded at any given time. New microcap stocks are released daily and old stocks slip between main exchanges and the small cap market just as frequently. This produces a vast blizzard of potential investments that can overwhelm any trader. Finding the right stock involves a good understanding of where and how penny stocks are traded. This will allow you to pick out stocks that are good investments and realize when to sell a bad one.

Most penny stocks are traded on what are called OTC-BBs. An OTC-BB is an Over the Counter Bulletin Board that lists stocks not traded on the major exchanges like the NYSE or NASDAQ. Brokers trading in penny stocks access this bulletin board to receive real-time quotations on stock prices, sales histories and volume information on various stocks. Keeping an eye on where your stocks are being traded allows you to gauge the risk inherent in that stock. OTC-BBs are not directly regulated by the SEC, though recent changes in regulation have made fraudulent trades far more difficult.

Another trading platform for microcap stocks is known as the Pink Sheets. The name came from the original format for the exchange, which featured quotes and bids printed on pink paper. The Pink Sheets have evolved into a hybrid hard copy/electronic medium, with digital information exchanges accompanying the more traditional pink paper versions. The Pink Slips are run by the Pink Slips, LLC company, which is not a registered market regulated by the SEC.

The differences between a penny stock and a regular stock are generally differences of scale rather than kind. Smaller, younger and less established companies often use microcap stocks to generate revenue necessary to continue operations during the vulnerable period following a company's birth. This, combined with the lack of direct filing of corporate data with the SEC, makes finding information about the company selling the penny stock more difficult. The lack of extensive regulation makes the penny stock environment more fluid than traditional investing, which increases both the risk and the potential for profit.

While the data for these smaller companies is not submitted to the SEC for public display it is usually available given the proper research. Learning about a company is an excellent first step in determining the potential value of a purchase. Companies will often publish a great deal of information about themselves on their websites, including their management team and information regarding their products or services. A company's position in the market directly impacts the performance of their stock, so examining what a company does and how it makes money can drastically reduce risk. As these companies are generally young and untested and their stock is by definition inexpensive, accurately determining the company's potential can result in a considerable profit if the company beats expectations.

As long as one keeps in mind the nature of microcap stocks and the way in which they're sold, they're a reasonable speculative investment that can be extremely profitable in the right situations. Innovations like stock alerts, which inform investors of penny stocks likely to see a significant promotion, can allow investors to respond quickly to the dynamic environment of microcap trading. Understanding the company, the rules and the nature of the available information can reduce the risk associated with purchasing penny stocks and maximize the likelihood of turning a tidy profit from your investments.