Tips for Investing in Penny Stocks
The Low-Down on Penny Stocks
What are penny stocks? Penny stocks are typically defined by the Securities and Trade Commission in the United States as stocks that are trading for less than five dollars on an exchange. These stocks are typically being offered by small companies. Penny stocks are usually being traded on smaller markets and are not subject to the same requirements as larger cap stocks are. With that being said, they can provide a great outlet to get your feet wet in the markets themselves and to learn right from wrong. A lot of people use penny stocks as their training ground before moving on to the larger markets.
Penny stocks are a good choice for people who are new to stock trading and want to try and make a little bit of money while learning what they are doing. Typically, it makes sense to hold stocks for a short period of time and to sell high and (obviously) buy low. Penny stocks are not something to hold on to during market fluctuations. They are almost meant to be bought and traded daily.
Penny stocks are a good choice for people who are new to stock trading and want to try and make a little bit of money while learning what they are doing. Typically, it makes sense to hold stocks for a short period of time and to sell high and (obviously) buy low. Penny stocks are not something to hold on to during market fluctuations. They are almost meant to be bought and traded daily.
Why Choose Penny Stocks?
Alright; the next question becomes: Why invest in penny
stocks? Here are a few reasons why investing in these small-share stocks may be a reasonable investment strategy for you:
- Lower price means a person can get into the market and play around without spending as much money.
- They can be bought in large numbers and sold relatively quickly in order to make quick profit.
- There are a lot of penny stocks available.
- It is easy to purchase and trade penny stocks.
With that being said, there are some reasons why a person may want to avoid penny stocks:
- Market volatility can quickly change the value of a stock and can cause prices to rapidly fluctuate. These changes are almost entirely unpredictable.
- It is easy to pump a stock or destroy a stock using marketing tactics. A lot easier than it would be to do the same thing in a larger market or with higher priced stocks.
- Higher risk. Less information about the businesses means that there is, almost automatically, a higher risk involved.
Tips for Investing
The best tips for investing are also the simplest. Do your research. Don't jump into things prior to knowing all of the information that is available on the market. Given the small size of many of the companies that are being traded on the smaller exchanges and that offer micro-cap stocks, there is typically not a lot of historical information available. Anything that can be found out about these companies is better than nothing and if you can find a valuable resource with picks and tips from an industry expert this can be a great place to start. Analyze the stocks and picks you receive as much as possible and do as much research as you can prior to jumping in. Just because the buy-in price is inexpensive when compared to the larger-cap stocks doesn't automatically make penny stocks a good buy. You can make money investing in penny stocks, but it is not easy and preparation and information are the keys to success. These penny stock tips should help to explain the how and why of the process.
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