Tips to invest in Over-the-Counter Stocks
With general U.S. securities exchanges portrayed by high unpredictability and frustrating returns, a few financial specialists may discover over-the-counter (OTC) penny stocks moderately not risky but rather more engaging than regular. OTC stocks still convey characteristically more risk than stocks exchanged on conventional, exceptionally controlled trades, yet the divergence in danger may at any rate be a bit lower than it has been before.
Penny stocks, are characterized comprehensively as stocks price for fewer than five dollars, yet all the more generally considered as stocks price for not exactly a dollar a share, are exchanged on both real trades, for example, the NASDAQ and over the counter.
Stocks exchanged over the counter are those that don’t meet posting necessities for a noteworthy stock exchange. OTC stocks care less to subject themselves to the administrative examination and reporting prerequisites. Rather, they are exchanged through merchant systems, for example, the OTC Markets Group (once in the past known as the “pink sheets”) or the OTC Bulletin Board (OTCBB).
A few brokers don’t give their customers access to OTC stocks, yet there are a lot of legitimate business firms that do offer OTC penny stock trading. Investors hoping to exchange penny stocks may experience uncommon extra charges and volume or other exchanging limitations that an agent may apply to exchanging OTC stocks.
The primary fascination of penny stocks has dependably been the chance to buy countless with a generally little investment, trusting that a small organization will become wildly successful and its stock price will take off from 10 pennies to $10 per share. That is an uncommon occasion, yet it does once in a while happen, and it’s workable for traders to profit by exchanging low-evaluated stocks on even a moderately little change in price.
For traders hoping to overcome the waters of exchanging OTC penny stocks, the accompanying are three tips for achievement.
1. Pay Attention on Volume
Volume, or more precisely liquidity, is a major challenge in trading OTC penny stocks. Large bid-ask spreads are common, and traders are advised to always use limited orders that specify a buy or sell price rather than market orders when trading. A 10-cent spread between the bid and ask prices on a stock that’s selling for $115 a share is negligible, but that same spread applied to a stock selling for 10 cents a share is monumental, since it means that if an investor pays the 10-cent higher ask price to acquire the stock, the stock price has to double before he can even hope to exit at the break-even point, minus broker commissions and other trading fees.
Buying the stock isn’t the only problem, since unfavorably large bid-ask spreads can also be problematic when looking to sell penny stocks. The best opportunities for getting out at a good price occur when there is higher volume that narrows the bid-ask spread.
Volume is also a frequently used technical indicator. Generally, increasing volume along with a rising price is considered bullish, while price increases that occur with low volume are interpreted as bearish, signaling the possibility that the price may reverse downward in the near term. In such situations, traders may wish to stand aside and wait to see if the price settles back to a more favorable buying level before rushing in to purchase shares.
2. Get Good Information
One of the significant difficulties of exchanging penny stocks is that solid data on the organization can be extremely hard to obtain. Quite a bit of what is distributed as news on penny stocks is just publicizing build-up. In any case, it is conceivable to get strong crucial data on numerous penny stock organizations. One site that offers such data is the OTC Markets site, which gives a key stock screener that financial specialists can use to channel stocks by specialized pointers, including volume, book esteem, income and income development. The site likewise gives news on penny stock organizations and on handles that offer OTC exchanging.
3. Have a Trading Strategy
Similar to the case with exchanging any stock, speculators ought to have an exchanging procedure going in and some estimation of a danger/reward proportion — the amount they can sensibly want to profit, they are gambling. One well known technique among penny stock merchants is force exchanging. Dealers stay with a stock when volume is expanding and when energy pointers shift. At the point when force begins to disappear, merchants consider offering out at any rate parts of their current positions in the stock.
This system can be a decent approach to gainfully ride the crazy ride of purchasing and offering movement that generally portrays penny stocks. Utilizing a force technique empowers a broker to utilize instability further bolstering his good fortune, purchasing when a stock cost is at a lower level, then offering when a sudden whirlwind of enthusiasm for the stock causes the cost to surge briefly.
Numerous penny stocks never make it above one dollar a share yet move forward and backward routinely between, for instance, 20 pennies and 80 pennies, offering dynamic dealers the chance to take benefits a few times over the same value range.
4. Don’t believe the success stories floated online
Penny stock investors have to make sure that they don’t believe any story, post or forum without making their personal research over the matter. You will have to understand that the penny stock stories are manipulated and unfortunately, misleads you. The profitable penny stocks with solid earnings growth are determinable with the correct company’s information and the actual stats over 52-week data
5. Read the tips and disclaimers
Penny stock tips will appear in your newsletters, emails, and mobile phone messages. There is nothing free in this world and you need to understand that the disclaimers at the end of the newsletters are meant to trap you for purchasing the stocks. There is a strong sense of purchase required for the penny stocks worth the purchase.
6. Don’t trust the company’s management blindly
There might be statements by the company’s CEO, CFO or other influential people regarding the company’s state. Don’t just believe them as there are many penny stock scams floated by the top management of the companies. ‘Pump & Dump’ scheme is related to the fake business models of the companies trying to cheat their investors.
7. Buy only large volume stocks
Penny stocks trading should be done for the companies trading at least 100,000 shares a day. The low volume stocks can cause difficulty in getting on the right position. The number of shares traded can be viewed and the lesser traded stocks should be avoided
8. Keep stop losses in mind
Stop-losses turning towards a hard way can make you lose money. Hence, wherever there is risk involved, try to cut the losses for better risk rewards.
9. Buying the best stocks
Penny stocks having the best earnings and reputation in the market can be explored with the right research. They are easy to look if you develop an eye for them to look out for the most promising stocks
10. Be a quick seller
The major setback for the investor is to sell the stocks late. You can make good returns with penny stocks if you sell them quickly and have an aim of earning from them without getting greedy. This is the most important aspect to get the profits and move on in the right way to get better returns over your investment
11. don’t get stuck in a bad short position
Penny stocks are highly volatile and you could easily lose your money by adopting the wrong side of the trade. It is difficult to find the penny stocks to short having a hype in the market.
12. Don’t trade large positioned stocks
You need to find the right way to trade in your limited investment. The basic rule of trading maximum 10 percent of the stock’s daily volume should be adopted. The limited share size will get you out of the stock in a better mode.
13. Don’t fall in love with the stock
Penny stock companies show their brighter side to the world. It is important to do your own research and not becoming a fan of the stock just by following its hype.
New investors must understand that shabby does not generally mean great. Penny stocks entice traders on the grounds that a little upside can decipher into different increases, however the inverse can likewise hold. Penny stocks exchange occasionally and analysts can think that it’s difficult to exit, particularly at craved levels. As a consequence of budgetary shortcomings, including poor control and screening, organizations issuing penny stock have a tendency to succumb effectively to monetary lows.
Everywhere you look there are places saying they have the best penny stock recommendations but the truth is there is no best penny stock recommendations and like all of them they are just recommendations. Before you can even consider using a recommendation you still have to research the stock pick and do your due diligence on the pick to see if it is actually worth investing into or not.
There are many free services you can use to do your due diligence research on the penny stocks you are interested in investing into. To find penny stocks that you could invest into you will want to use a stock screener and check OTC bulletin boards as well as pink sheets to find many possible investment stocks. Then once you get the name or stock ticker you can look them up on data sites like yahoo finance, google finance, thestreet.com or fool.com they offer tons of free data like current and past trade prices, financial data and much more.
When you are looking at the volume of a stock you will want to find one that has millions of shares traded daily with small current market values. You will definitely want to look at the companies financial data and look at cash flow, assets, and even debt if they have any. Net profit margins are also a good thing to look at so make sure that they are actually making a profit, how ever small it may be if it’s very low it could mean that the company could start losing money in the near future.
When looking at the historical market value charts you will want to see if the value has gone up more than usual recently as if it has then it is most likely to go down soon and it would be better to wait for it to go down before investing into it. With all stock investing you want to buy low and sell high to make maximum investing profits.
Finally, before investing into penny stocks you will want to invest in multiple stocks to keep an investment portfolio. If you keep all your investments in one basket you could risk losing all of your investment but if you have it split between multiple stocks if one stock goes down you could still be making profits with another stock that has gone up. If you stick to the key penny stock advice and penny stock recommendations listed here you will have the tools to understanding penny stocks to become a great penny stock investor.