How to invest in Penny Stocks?
Penny stocks are the low-priced stocks having a share value of less than $1. The beginner investors undertake these stocks as the bulk stocks which could be purchased at low prices. The extremely low prices of the stocks allow the investors to hold thousands of shares with a lower amount of investment. The gain of a few cents per share can even result in higher returns in terms of percentage. Also, the losses can also be higher with the lowering down of the prices of stocks. Penny stocks are highly speculative and are considered to be highly risky for the lower liquidity levels and a small market capitalization of the associated companies. We also recommend checking out our free training.
SEC (Securities and Exchange Commission) defines penny stocks as a stock of the micro-cap company trading lesser than $5 per share. There is a chance that the company is new and requires market share or it might be close to bankruptcy. These stocks are dissimilar to blue-chip stocks and are not traded on the major market exchanges. The stocks less than $1 are delisted by Nasdaq rule. The people interested in trading penny stocks move towards OTC market groups for trading.
Keep points to keep in mind when learning how to invest in penny stocks
Narrow down the trade list
You need to understand where the penny stocks need to be traded. You can use the stock screening tools and check out the stocks under $1 pricing. It will be easy to pick up the right stocks from the list of penny stocks.
Open an account
There are many things included in the trading account, including the transferring of funds, fee and customer service. Take your time to shop around and choose the broker meeting all the requirements in the right way. Penny stock investors need to check out the fee structure of the commissions on a per-share basis. This is quite suitable for long-term investors looking for the purchase of a low number of shares. For day traders, there are other options available which could be lucrative for the investors who trade on penny stocks.
Understand the risks
It is very important to understand the risks involved in penny stocks. The associated companies having penny stocks have lower liquidity levels and are highly volatile. Hence, it is important for the traders to make enough research before making an investment.
Investing in penny stocks
Investing in penny stocks can bring substantial rewards, and the risk is low enough for anyone to become a stock trader. These tips will help investors become more successful in trading penny stocks.
Look for Companies that can Make a Profit
If the company has made a profit or is making a profit now, that’s a good sign. Startup companies often operate at a loss but don’t assume that will change. Look at the causes of the losses. Why is this company losing money? Will they be able to recover on their own? If they have to seek additional financing, that will dilute your shares, and a joint partnership may give control or financial advantage to the other company. Avoid situations where the company does not look poised to become profitable. These are definitely not awesome penny stocks.
Understand that these are penny stocks, and there’s a reason for that. Don’t expect to discover the next Coca-Cola or Wal-Mart. Know what penny stocks are and what is reasonable to expect. Awesome penny stocks can be a good investment, but it’s important to keep their nature in mind.
Look at Liquidity
You want to see a consistently high volume in trading. The average may not be very enlightening because a large volume Monday but no trading for six days could still yield a deceptively large weekly average trading volume. Also, make sure that the trades are not all from one insider. You don’t want to end up dead money that you’ll have to dump at the bid for a lower selling price. You want awesome penny stocks with great volume and returns.
Have a Plan and Follow that Plan
Most penny stocks are not stable. They move quickly in either direction and if you’re not careful with your investments, you can quickly end up running out of money when a stock drops quickly. Remember, if a stock costs $0.10, a decline of only $0.02 is a 20% loss. Move on when you get stopped out. Don’t be tempted.
Know Your Source
Many penny stock investors get their stock information from email newsletters. This is not necessarily a bad thing. There are great newsletters out there. However, others are nothing but pump and dump schemes. Before trusting any source, subscribe to the newsletter and track the investments it recommends. After a short time, you’ll be able to tell whether the newsletter is giving good information about awesome penny stocks with a legitimate opportunity to make money.
Penny stocks are a good investment when done right, and investing in awesome penny stocks is enjoyable. The volatility of the stocks adds to the fun of trading. An investor armed with these tips for doing well in penny stocks will be much more successful. As a byproduct, penny stock trading will be more fun, because success is always more enjoyable than the alternative.
The investment in penny stocks requires cautiousness. In most of the cases, these small-cap stocks are susceptible to becoming highly volatile. If you are sure that you’ve understood the risks associated with these stocks, it will be easy to proceed. Stock screeners can help in getting the narrowed listing of the stocks which meets your trading pattern, niche choice and the tolerance of risk. There is a different answer for every stock trader for investing in penny stocks. Make sure that you understand the stocks before investing and choose the right stocks by making the appropriate moves. It is essential to get the penny stocks screening … Read More