Penny stocks investment: What are penny stocks?
The name itself is kind of a misnomer because it does not really mean all the shares are only worth a penny.
In reality, a penny stock is any stock that’s trading for less than $5 a share.
They are offered by small companies which are trading through a board called “Over the counter “ or (OTC).
They’re found Over-the-Counter because they don’t meet the stringent requirements to have them listed on the bigger boards, such as New York Stock Exchange and Co.
Does that mean they’re illegal? The short answer is no, they are legal but you have to approach them cautiously.
How to trade Over-the-Counter stocks?
They’re basically traded the same way as you would trade a regular stock, which is also known as a blue chip stock.
However, penny stocks are more volatile and require more of your attention.
Which makes them even more dangerous to an investor, especially to someone who is just starting out.
Although most of the penny stocks are found on OTC you may be lucky to see some of them being traded on the New York Stock Exchange (NYSE).
It’s possible but don’t let that foul you to think they aren’t just as dangerous as those on the OTC.
Investopedia has a very detailed post on how to trade over-the-counter stocks, you can refer to it if you need to.
Why do investors choose to invest in penny stocks?
Most investors pick penny stocks instead of regular ones because they can make profits faster.
Unfortunately, in the same way, it’s faster to make profits and see your position plummets.
Others choose to trade penny stocks because they don’t need to have a lot of capital on their hands to start.
Some choose penny stocks just because they want to practice with the market, which is a very bad idea.
When deciding to invest your money into penny stocks you have to be sure you know what you’re doing.
The least expensive is a penny stock per share the more dangerous it is.
For example, stocks under $ 1.00 per share are more dangerous than those selling at $ 2.00 per share.
The lowest ones are more volatile, it’s easier for them to decrease or increase prices depending on the market’s sentiment.
Is penny stocks investment worth your money and time?
If you’re at the beginning stage of trading I would not advise you to start unless you’ve practiced paper trading first.
If you don’t know about paper trading, they’re platforms offered free of charge for people to practice trading without the risk of using real money.
The way it works is that you’re given an amount of paper money when you open your account, and then you’re free to trade whatever and however you want.
It’s pretty fun as well as beneficial in teaching people how to trade in the real world. I usually advise people to do paper trading prior to trading their money.
To respond to this post’s main question, penny stocks investment can be beneficial; however, it requires knowledge and self-discipline in order to be successful at it.
There’s no reason for you to invest your money in penny stocks if you think that you’re not up to the task.
Those who are trading them know precisely what they’re up against.
As they’ve done their due diligence prior to embarking on this journey.
Therefore, if your plan is to start trading penny stocks your first priority is to know the hang of it in order to survive.
For this reason, I’m going to share 3 important tips with you which can serve you well through your penny stock trading experience.
- Trade with money you don’t have any plans for.
One mistake that we’ve seen too often is those who are using their bills money to trade penny stocks in the hope of making a profit before paying their bills.
That’s something one should not do because you’re never guaranteed that you’re going to make any profit when trading penny stocks.
Not only penny stocks, even regular stocks don’t guarantee any profit. With that being said, you’ll need to be very smart with your decisions.
- Wake up early to check the market prior to the opening time.
Starting your trading day early can be advantageous to you because we often see movements in the early start of the market.
Although there’s no specific time for a person to start a day of trading, the period of time between 9:30 AM and 10:30 AM is often the best time to trade.
The first 15 minutes after the opening day is usually when the market goes wild, it’s usually when many penny stocks investors make lots of profits.
However, it does not mean that you can’t make profits during the rest of the day trading.
- Take your profits and run.
One mistake to avoid is the willingness to wait for more.
Penny stocks investment is very tricky, you may gain some profits in a short time, and then before you blink your eyes your earnings are gone.
That’s why you should not try to “Get rich from one stock.”
Don’t be greedy as it may not help you in the long haul.
Whenever you have some profits it’s always best to cash out and move on.
To wrap up, penny stocks investment can be beneficial; nonetheless, you’ll need to be very careful with your trades and your strategies.
You’ll need to be disciplined, have a plan and stick to it no matter how things look.
If your plan was to sell after gaining 10% and you achieve that, don’t wait for 20%.
Always get up early to be ready prior to the opening trading day.
This will give you the advantage to look for stocks that may have the potential for a good day, more precisely a good start of the day.
I wish you the best of luck, please don’t forget to share this post with your friends on social media if it was helpful to you.