If You’ve Decided to throw your hat into the trading game and if you’re considering making an investment in stocks, starting your journey off by investing in penny stocks could be the Best Choice Available To You. Due to their low investment to high reward ratios, penny stocks have become unbelievably Popular amongst both amateur investors and newcomers alike – they prefer these stocks to the other types of market trading.
With the dramatic rise of online trading in the past few years, investing in and Getting Healthy Returns from penny stocks have literally become as easy as pie. Trading online and conducting day trading through the Internet have become efficient and user-friendly, which is helping to attract many new investors. These new investors are typically either newcomers or from other markets.
In essence, stocks are now a lot easier to purchase than they were before the Internet took a prominent role.
Even if penny stocks can be risky to invest in, the Fact That Healthy Returns Can Be Gained From An Initially Low Investment Makes Them Sound Very Appealing To People. However, knowledge and in-depth research about profit and risk factors can greatly reduce the risks involved with penny stocks. This applies to other types of investments, too!
REMEMBER, KNOWLEDGE IS POWER!
Detailed below are five tips that could greatly aid you in earning money when trading penny stocks:
- Start Off with Only Very Small Investments
If you’re completely new or have no experience in penny stock trading, a wise choice would be to purchase a company’s shares that are priced in 1 or 2 digit per share, rather than those in a company whose shares are in hundreds or in thousands. It’s also a good move to buy small amounts of shares in many different companies, so that you “don’t keep all your eggs” in one basket, if you find yourself in a less-than desirable circumstance.
A key piece of advice is to invest only between 10-15% of your funds in penny stocks – no more!
- Look for the Important Details Before You Invest
Many new traders do not bother to research their invested-in company’s position and role in the economy and infrastructure. They also do not usually check its operations before they invest their money in the company’s shares. Just judging the company’s current financial health in the markets is not good enough: a perceptive trader should be kept aware of their invested-in company’s operational numbers, its administrative capabilities, and other such vital pieces of information, as much as possible.
Only invest your money in shares that are viable – those that are reliable and look to promise good returns in the end.
If You Have Any Doubts Or Concerns, Talk To An Expert, A Financial Consultant, Or Even Just A Knowledgeable Broker Who Understands The Market And Other Such Major Stock Exchanges. You’ll Learn A Lot.
- Analyse the Trading Volume
It should always be remembered that penny stocks are liquid. A large stake/share is always in the hands of the promoters, of which whom all want to be sellers, too. The trouble is that there aren’t that many people who want to purchase the stocks. When someone wants to purchase more stock when the prices are low, this can compound the problem, and in the end makes it difficult to sell those shares that the investor originally bought on the cheap.
Therefore, it is essential to always check the stock’s trading volume history for the last six months, or perhaps even longer – analyse the trading volume to see if it has been high or low; uneven irregularities and spurts are good indications that they’ve been manipulated in some fashion.
- Penny Stocks are Susceptible To Manipulation
Compared to the stocks in other significant markets, penny stocks are much more susceptible to being manipulated. Many investors often buy a company’s stock because of positive word-of-mouth and biased media recommendations. Once the investor falls into this trap, they are ripe for those less-than honest dealers’ cons.
However, don’t let this deter you from investing – you just need to take more care with your choices and your decisions!
Always commit to doing extensive research before investing in anything.
- Stock Prices May Permanently Crash and Burn
There’s a huge misconception about penny stocks – many investors stupidly think that the company’s stock won’t weaken and lower in price.
If the company is having problems, be they legal or financial, it usually means that promoters have ended their financial support or that the manipulators have achieved their goals.
If the stock prices tailspin, there’s little-to-no chance of receiving any type of return on your investment. Stock exchanges will eventually even de-list the company in question, after a certain amount of time has passed. When this occurs, the stock is essentially worthless.
Remember, it’s vital to work with strict stop-loss targets – leaning on hope is a foolish move, so don’t fall into that trap!
There’s no beating around the bush – penny stocks can be very risky to invest in. Frauds and swindles of all types run rampant in the muddied waters. On hearing that, right now I bet you’re asking yourself why people even bother to invest in them, if there are so many risks involved.
The answer is quite simple: penny stock investments can earn a lot of money in a very short period of time, and many investors believe that the benefits of such risky investments triumph over the drawbacks – if they play the market right, of course!
If you’re smart, and if you research and analyse, you can greatly reduce the risks associated with penny stocks, as well as avoiding the scams.
Good luck to you!