In many quarters, penny stocks are considered as any type of shares that sells for less than $5. However, these shares come with a bigger risk than regular stocks. The reason for this is simple. Companies that hold penny stocks are either small startups or organizations dealing with unproven products. In addition, the companies have no quantifiable profits and have minimal operations. And unlike regular stocks that are traded on the major exchanges, penny stocks are traded on pink sheets and bulletin boards. These platforms have very little regulation and control. In fact, the companies are not required to file with Securities and Exchange Commission (SEC). This opens the flood gates for unscrupulous traders to prey on unsuspecting investors.
Also, it is important to note that penny stocks have low level of liquidity because of the lack of ready buyers and sellers. Therefore, you may find that these stocks are not filling orders at any time. And when compared to other types of stocks, OTC penny stocks have the highest level of volatility.
However, people like penny stocks not only because of their cheap prices, but also have very simple math. Although the shares are sold at very minimal prices, they can either increase or decrease in value within a very short period of time. There are penny stocks changes values by over 50% and this is something you do not see on regular stocks in the market. As a result, your investment could either gain or lose great value in equal possibilities.
How do you invest in penny stocks?
If you are interested in penny stock trading and you would like to give it a go, you first need to learn the tricks before trading. This is because; you must be an educated trader so that you can understand the market. It is only after this that you can be able to successfully trade on penny stocks. If you master how to successfully trade on penny stocks, you can get the best risk-reward ratio of any business.
Also, before you begin trading on penny stocks, you need to learn how to avoid scammers. Scammers are easily identified as they have exaggerated promises on the returns that you are likely to get from your investment. For example, scammers come with banners that read ‘becomes a millionaire with penny stock instantly’, ‘pennies to dollars fast’. Such adverts could be a trap to lure you in and you should treat them with a lot of contempt. To successfully trade on penny stocks, you need to follow the tips below:
- Conduct a good research. Before investing in a company, do your research well to ensure that they are legitimate. This is important for it will prevent you from getting scammed. In the research, you should make sure that the company exists and is involved in a legal business.
- Choose the right broker. As timothysykes.com says the key to success in penny stock trading lies in finding the right broker. A quick search online will reveal a number of brokers who engage in penny stock trading. Unfortunately, such brokers charge extra money to penny stock traders. Also, you may want to find a broker who does not charge surcharges on large orders as this can further cut costs for you. And before you sign a deal with the broker, you need to ensure that they do not impose limits on the types of trades that you can do. That way, you will be free to do all the transactions that you want.
- Determine the type of trade to conduct. The best way to go about this is to find tools that exist on the OTC markets. Many OTC markets categorize securities into tiered marketplaces. this may help you in identifying the stocks with the potential for growth.
- Begin trading. As you begin to trade on penny stocks, it is important to realize that you can either make or lose money in all your trades. This realization will help you in accepting any possible outcome from the trade.
- Join a day trading chatroom. If you want to be successful on penny stock trading, you need to join a chatroom that will provide you with information on the trade. There, you will find other traders with whom you can share a lot of information on the topic.
With the above guide, you can now take a shot at penny stocking. However, to be successful in the trade, you not only need the right education and discipline, but also both the right training and willingness to take the risk.
To read more on topics like this, check out the business category.