Buying Penny Stocks With Small Floats and Low Market Caps

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Buying a penny stock with a small float and low market cap enables you to capture a larger percentage of the available supply at a minimal cost. A small float is defined as a small percentage of a company's stock that is outstanding in the public marketplace. A low market capitalization is defined as when the stock price multiplied by the number of shares outstanding is relatively low. The main benefit to this scenario is when the stock starts attracting large investor interest you will be holding a large percentage of the supply.

The way the laws of supply and demand work means that the stock will appreciate much faster than a stock with a larger float under those circumstances. Also, if the stock someday becomes listed on an exchange, by owning at least 5% of the company you will be entitled to special rights associated with owning at least 5% of a public company. You should be able to use your shares to vote for and against proposals and to possibly take a board seat on the company. The challenge is finding a company with a low float and cheap stock price that has great potential so you can acquire at least 5% of the outstanding shares.

One of the best ways to do this is to create a penny stocks to watch list. You may want to limit your concentration of stocks to watch in only a few sectors. Maybe it could be in industries that you have a special interest or experience in. This just helps in that you can begin to get familiar with stocks in specific industries and not spread yourself to thin. As you research these companies, you'll determine if the company's fundamentals, direction and potential will match up with your interest in stocks with small floats and low market caps.

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