Penny stocks are considered some of the most volatile shares on the market. Since they sell and trade at such a low price they seem an easy way to earn money. They can be very risky, but when they do pay off it is with a very high return. If you have been thinking about getting into trading penny stocks, you should start right from the bottom.
Be as knowledgeable as possible before you get started, and you should be have considerable success in you penny stock trading future.
Investing in penny stocks (baby steps)
If you have read up on and understood the risks of buying penny stocks, you can get started by:
- Having an internet connection
A good internet connection is extremely useful. Every morning, the stock exchange opens and publicizes the values of different companies for the day before. You will need to follow these changes closely via the internet. This way, you will know what shares to buy and what to sell in order to get the best returns.
- A broker
A stockbroker is a firm that enables you to trade in stocks. For penny stocks, it is easier to register for an online account. Sites like Etrade offer great customer service and tips. You need a brokerage account to begin trading, so make sure you get one. (see list of brokers)
- Stock options
The third, and most obvious thing is that you need a few companies with stocks you want to trade in. Make sure you read up on how to spot winning stocks and other guides like this in order to select the best options.
Once you have the above three, you are ready to get started!
Funding Your Account
You will need capital in order to start trading. If you want to qualify as a pattern day trader, you are required to have a minimum of $25000 in your trading account. However, certain brokerage firms allow you to trade at a lower range. If you do so, there are likely to be limits on the trades you can do a day, which can be either a good thing or a bad one.
Place a Limit Order
This is you telling your broker the maximum amount you will pay for stock in a day. Be warned, if you set this too low on a good day, your order will be full quite fast! This means you could miss out on some good trades.
This is basically you telling the market you will pay a certain amount for someone’s shares. You then wait for someone to see it and sell the shares to you. On a day when people are selling a lot, a low limit order means they will simply bypass yours for a better offer. Make sure you consult a professional and then place your order.
Use Chaos to Your Benefit
The penny stock trade is highly volatile but this could work in your favor. For example, if you had $3000 to invest, and you were to invest it in a company like Walt Disney, you could buy up to 25 shares at $120 to $150 each. The company is stable and successful, and grants a return of 26% for the year. This is quite great!
However, you might want more. This would mean taking a risk in the penny stock market, but it could pay off, such as in the case of CannaGrow. This company was selling shares at 5 cents a year ago. If you had invested in this company at the time, you would have been around when the share price went up. It shot up to $1.05 a few months later. Selling your shares at that time would have resulted in a huge return.
However, what seems like a blessing could also be a curse. With this kind of temptation, people tend to get greedy. If you have rules about selling and buying stock, make sure you stick to them.
Do not let your feelings cloud your judgement.
Take calculated risks
When trading in penny stocks, you need to be certain that the company you are investing in is one you can get reward out of. There are lots of companies out there that operate without assets and without any income. All they do is use hype to get people to trade in their stocks. These companies, like Stratton-Oakmont (which The Wolf of Wall Street used), could end up going defunct acutely. This would turn your promising investment into a huge loss.
In conclusion, make sure that you invest wisely in penny stocks. Research companies as deeply as you can before trading in their shares, and make sure they have legitimate operations (see some best prospects). Try not to invest in new companies. Look for stability while using volatility of the market to further your own evil plans. DO NOT be taken in by email, social media, and newsletter hype. Believe what you can see and know for sure. Trust no one, and you should be absolutely fine.
Basically, the wolves are out there, so tread lightly and you just might catch a stag for dinner.