Whether you are interested in hot penny stocks or shares from more established Blue Chip companies, it is critical that you have a solid understanding of the basics of the stock market, terminology, and the players and movers involved. A good piece of penny stock advice is to understand what a market maker is and how it can affect your investment strategy and profits at the end of the trading day.

The experts at Investopedia define a market maker as "A broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in mere seconds."

In more practical terms, making money with hot penny stocks often revolves around the ability to quickly buy or sell. Market makers make that possible, quickly. In fact, thanks to such a firm's knowledge, experience, and leverage, this kind of transaction can literally occur within seconds. Unlike other broker dealers, those considered to be market makers not only offer the best stock advice, but have a rock solid understanding of the ask and bid price for any given share -- any time, any day.

What is the ask price? This is the lowest price that a seller is willing to sell his or her stock or bond, and must always be compared to the bid price, which is used to calculate the spread or the profit the money maker will make on the deal. The bid price, on the other hand, is the highest price that an investor is willing to pay for a stock or bond.

Market makers provide a valuable service for top penny stocks and other securities because they are willing to buy shares from a seller even if they do not have a buyer readily lined up. Hence, the brokerage firm is "making a market" for a particular stock or bond. A related question in all this is how does the market maker actually make money? Pretty simply, actually. As an example, the brokerage firm buys your shares for $100 each and then offers to sell them to a buyer for $100.05 -- a difference of only $.05 per share -- and stands to make a tidy profit when dealing with millions of shares each day.

Some Words of Caution

As any astute investor will tell you, the stock market is gradually improving and there are always opportunities to turn a profit if you know where to look and what to avoid. Solid penny stock advice that we encourage our customers to follow is:

• Always do your research. If you have gotten a lead on hot penny stocks from a friend, family member, or co-worker, never jump blindly into any transactions. Research the stock that is being promoted. Is the company on solid financial ground? Any complaints to the SEC?


• Be cautious of something that appears to be to be too good to be true. If it looks that way, then it probably is.

Finally, never forget whose money is really on the line. Market makers are established firms with assets at their disposal the average investor can only dream about. The money you are investing is your own, so try not to be swayed by wild "what ifs" -- and instead settle on cold hard facts based on stock performance.

Everybody makes mistakes. It’s human nature, whether it’s in matters of personal relationships, business, or acting on penny stock advice that may significantly affect your financial well being. Investing is one of the most difficult things anyone can do, especially successfully, so in order to make money in the stock market you have to be open to good penny stock tips as they come along.

A key means of recognizing a good penny stock pick from a bad one is appreciating history, and learning from the mistakes of others. Too often, new investors hear of a bad investment that someone made and immediately say, “That’ll never happen to me because I’m too smart.” Well, no one who ignores lessons from history is smart, so pay attention and we’ll help steer you down the right path if you want to make money with penny stocks. Here are five lessons to pay attention to.

1. Mixing penny stocks with bonds and other securities will moderate risk to your portfolio. Stocks and high-grade bonds are fundamentally different assets, often trading off years in which one is a good investment and the others bad. Keep this in mind as you begin to invest.


2. The risk to your portfolio slowly diminishes over time as you add more – and a greater mix – of penny stocks and other securities. There’s an old saying there’s strength in numbers, and the same holds true when it comes to investing and being even moderately successful.


3. Playing it safe can spell doom, if that’s all you ever do. No, we’re not advocating your portfolio should solely be made of high risk securities, but there is such a thing as an educated risk. You can take chances and win in the stock market, as long as you do your research, respect lessons from history, and learn from the other guy’s mistakes.


4. The state of the economy, which is an obvious indicator of stock market success. From a historical perspective, the global economy was ripe with signs of a recession before the stock market crash of 1929. How so? Production was falling, prices were falling and personal income tumbled dramatically. Several people in the know – including a certain Rockefeller family – intimated that bad times were ahead, which may have resulted in mass stock sell-offs. And if there was a strategy in such pronouncements, they failed miserably.


5. Hold steady. Like 1929 when droves of investors sold off their stock, take a more pragmatic approach and keep your eyes open. Investors back then didn’t have access to the tools and knowledge base folks do today, so use that to your advantage. Know the markets, and be prepared to act – but not jump ship at the first sign of a leak.

We’d be remiss if we didn’t tell you there are risks involved to investing in the stock market, but if you pay attention to historical trends and combine that with current data, you may be able to minimize risk. Ultimately, understanding history can lead to future profits.

Fraud happens, and takes on many different forms that can do everything from manifesting themselves as bad penny stock advice to directly impeding your ability to make money in the stock market. The law simply defines fraud as an intentional deception made for personal gain or with the goal of damaging someone, and you need to be careful so you don’t fall victim to erroneous stock advice that could result in financial ruin.
While finding good penny stock picks are the goal of any investor, that’s difficult to do when you’ve fallen victim to fraud. Here are the top 10 ways to protect yourself.

• Ignore unsolicited emails and telephone calls. Many successful fraud schemes rely on victims being too polite to hang up or ignore stock advice that’s too good to be true.


• Get to know the Securities and Exchange Commission or a similar governing body in your home country. These government run agencies were created to protect investors from fraud and other illegal practices that will separate you from your hard earned money.


• If you don’t understand a bit of penny stock advice you’ve received, then don’t invest. It’s really that simple, though it takes a fair share of intestinal fortitude to turn away from a tip on hot penny stocks, especially if they come from family or friends.


• If someone is trying to play you with promises of an unbelievable return, walk away. Honestly, do you really think a 20 percent return on your investment is possible for a product someone has never heard of, or for which a market or customer base doesn’t exist?


• Verify the investment is as promised. In other words, make calls, do research, track down every bit of information you can from independent sources.


• So you decided to go with a stock broker, but first you need to verify his or her credentials with a local professional association, the chamber of commerce, or a similar government entity that may have records of this person’s professional history. If you consider yourself an Internet guru, then utilize social media sites to track down information.


• Beware of the pump and dump scheme. Some experts describe this as a scheme that tries to inflate stock price through false or misleading information or statements. In most cases, the perpetrator already has an established position in the stock in question, and sells once the hype has driven the price up – usually before anyone else.


• Advance fee schemes. While it’s true that you have to spend money to make money, never fall for someone telling you to pay fees before receiving information on stock or any other security.


• You get what you pay for. On the other hand, you may fall victim to a financial advisor who charges a very small fee, then immediately disappears and is never heard from again. Many people fall for such schemes, but few report them because the sum that is lost is so small.


• Don’t divulge personal information without knowing why, especially credit card or banking information.

Investing in the stock market and building a winning strategy to make money is not easy. Thanks to the Internet and cable television, investors are continually bombarded by a slew of analysis mixed with obvious chafe. So the question becomes: Where do I start? Of course, the Internet is indeed a plethora of valuable knowledge and advice, but finding and digesting it may take more time and effort than most people can afford. Thankfully, we have put together a list of some common stock market terminology that applies not only to blue chip companies, but smaller ones whose shares are traded as penny stocks.

Note the following are listed in alphabetical order; not by order of importance.

• Account. This is what you open with a brokerage firm (full service, discount, online) in order to buy and sell shares. It keeps track of all your transactions.
• Asked Price. This usually equates to the lowest price you can pay per share.
• Basher. This is someone who visits Internet message boards – usually with a fake identity – with the sole purpose of making negative comments about a stock, causing the price to drop.
• Bid Price represents the highest price at which you can expect to sell a share.
• Blue Chip Stocks. These are companies that are considered safe and conservative, with little risk or downside. They are widely held, have major market capitalizations, and offer a certain degree of price stability. Think IBM, Microsoft, Walmart, Berkshire Hathaway.
• Broker is someone who acts as an agent on your behalf when buying or selling shares.
• Due Diligence. This is simply a fancy name for research, which every investor needs to do before buying or selling shares.
• Fundamental Analysis. It means looking at things like financial results, industry conditions, press releases, and more.
• Large Cap Stocks sometimes go hand in hand with Blue Chip Stocks. Large capitalization stocks are worth hundreds of millions of dollars – sometimes much more – as opposed to small cap stocks, and penny stocks, often worth $50 million or less.
• NASDAQ. This originally referred to "National Association of Securities Dealers Automated Quotations" and is the second largest stock exchange by market capitalization behind the New York Stock Exchange.
• OTC, or over the counter. This means any stock that is not traded on a regulated exchange.
• Penny Stocks are shares in publicly traded companies that mostly sell for less than $5 a share, and often pennies on the dollar.
• Pink Sheets. This is common terminology for stocks that trade on an exchange that has little reporting requirements or regulation, and little or no responsibility to investors. Technically, Pink Sheets is a trademarked name owned by OTC Markets Group, Inc. but is most often used when talking about penny stocks.

Keep in mind this is not an all-inclusive list, and savvy investors will know to do more thorough research to better understand terminology and strategies that may affect their future earnings in the stock market.

According to some reports, less than half of adults in developed countries save money for retirement, which begs the question: Why? There are many factors, such as the cost of living, the size of the family, declining salaries and disappearing pensions, rising taxes, all of which keep people from trying to make money for the future. While investing is never easy, it is possible to make money with penny stocks or other securities if you follow good stock advice and common sense.

Tips for Investing for the Future

• Put your investment dollars into the right buckets. This means diversifying your investment portfolio between hot penny stocks, mutual funds, savings accounts, cash, and other securities. A good piece of penny stock advice is to never allocate more than 10 percent of your investment dollars into one type of share or market. In other words, focus on asset allocation.


• Depending on your age, many financial advisors recommend that you save 20 percent of your income toward retirement, which may be an unrealistic goal given the state of the economy.


• Your age at the time you start saving for retirement plays a key role in how much you can set aside each year in different securities. If you’re just starting your career, you can probably afford to set aside the minimum. But some financial advisors recommend that stock market equity or exposure should be about 120 minus your age, so if you’re 55, that means about 65 percent should be invested in stocks – penny or otherwise.


• Watch out for fees. Working with a financial planner, stock broker, or other financial institution means you’ll pay fees for account maintenance, reporting, and the like, but this amount should never exceed one percent of the value of your portfolio.

What Not to Do

Many people today, especially couples with children, have no realistic concept of what it means to retire. Thanks to the global economic meltdown and fiascos with Enron, whose employees lost their entire retirement savings, and problems with domestic American car companies, whose workers’ retirement benefits were greatly slashed, workers in all walks of life assume they will never retire. But it can be done, with careful planning and determination, as we’ve outlined above. There are also some things to avoid when investing for retirement, among them:

• Don’t give in to whims, or changing your investment portfolio at the drop of a hat. The goal is to sit down once a year and re-balance your portfolio, either by yourself or with the help of a financial adviser. According to T Rowe Price, investors who re-balanced a $100,000 portfolio once a year saw $31,000 more at retirement than those who stayed put.


• Don’t try and time the markets, which could result in significantly lower returns than if you bought shares and exhibited patience by holding onto them.

Trying to make up for not investing earlier almost never works. Let’s face it, our time on this planet is pretty limited, and if you work for 40 years before trying to save for retirement – you may be disappointed with the results. Invest early, often, and sock away as much as you can comfortably afford.

Investing in the stock market and trying to make money is like a big shell game. You never know where you’re going to come across awesome penny stock picks that are too good to pass up, but the road to success is filled with rough patches to tread across carefully. We know you’re careful when you invest, but a good piece of stock advice to share is this: Learn to analyze industries for the stocks you’re interested in, before diving in head first.

To analyze industries, follow these simple steps:

• Decide what you’re interested in first, and it could be alternative energy sources, mining, agriculture, pharmaceuticals, or anything else. But if you’re going to make money with penny stocks, your level of interest in a particular industry needs to be balanced with the potential for generating profit. The industry you select may be ripe with hot penny stocks to choose from. For instance, rare earth metals is an industry critical in the production of high tech devices like cell phones, tablet computers, medical imaging devices – but China controls 90 percent of this market. However, many companies in other countries, particularly those located in the southwestern United States, have begun investing in mining operations to bring up rare earth metals – and are perfecting ways to extract these minerals from long-thought dead mines. Many analysts believe the Chinese hold on rare earth metals will expire soon.


• Look for trends in the market or markets you’ve settled on. Does the market appear to be growing? Are the stocks you’ve settled on near the top of the market in terms of trading volume and rising share prices? Understanding market trends are a good way to uncover penny stock tips.


• If you’ve settled on an industry and have stocks in your sights, it’s time to do something that many new investors take for granted: Research. “Hit the books,” if you will, culling information and data from reputable web sites, news programs, magazines, analyst and industry newsletters, company earnings reports and other official communication. You’d be surprised by the penny stock advice you may come across from these sources when you least expect it, so keep your eyes open.


• Properly analyzing an industry isn’t something you should do alone. In fact, let reputable analysts do some of the work for you, as they likely have years of experience in a particular field that gives them insight you could never accumulate in a short time frame.


• Never settle on one source for your information. This is the same strategy that successful journalists use. If a journalist is working on a “hot” story and initially only gets information from a confidential news source, that same information can be disseminated to other sources as a means of confirming what a confidential source revealed. This is an age-old trick in the newspaper business, but is something that many young reporters don’t appreciate. In other words, if you have a hunch about a stock, see what a reputable analyst is saying, compare that to market trends, and triple check your suspicion with an industry newsletter, for instance.

Learning to analyze an industry can be technical in nature, and may take time, but in the long run the work will be worth the effort.