How to trade in Penny Stocks
Penny stocks have a fairly simple principle: spend less money and earn large profits. However, trading penny stocks is always a good way to lose money, unfortunately. If you understand how to invest and play the game of penny stocks, it is possible to make a profit but it is much more difficult for those who don’t. Penny stocks have many scammers and manipulators.
For example, for investors who want to buy shares in large companies such as Google, penny stock investment becomes very useful. So one can buy 10,000 shares for $0.30 a share for a total of $3000. When the stock reaches about $1, the share value goes up to $7000, more than double of what was initially invested. It is important to be very careful when investing in Penny stocks . First off, one has to ignore penny-stock success story. It is a much high risk game and you should not blindly invest in them. Many people invest in Penny stocks and lose a lot of money. It is important not to have such a high trust factor when doing so. One benefit of penny stocks is you can make 20% or 30% in a few days. If you make that kind of return with a penny stock, sell quickly. But traders get greedy and aim for a 1000% return instead. In penny stock investment, it is best to take what you can get. Another important point to note is not to listen to company management. Companies try to get their stock up so they can raise money and stay in business. There is no reliable business model or accurate data, so most penny stocks are scams that are created to enrich insiders.
Penny stocks are too volatile, and if you’re on the wrong side of the trade, you could easily lose 50% or more on a short squeeze. Another problem is that it’s difficult to find shares of penny stock to short, especially those that made huge moves based on hype and newsletter tips. It is important to understand the OTC market if you are investing in penny stocks.While some penny stocks trade on exchanges, like NASDAQ and the OTC Bulletin Board (OTC-BB), a significant majority trade on the Over the Counter (OTC) markets, which include the Pink Sheets. The OTC markets are really stock markets, since transactions on these markets are conducted on a one-to-one basis whereby a buyer is purchasing directly from a seller. This type of transaction differs from trading on an exchange, where the price of a stock is based on all buyers and sellers coming together to ensure the best prices.
Many investors, especially those new to the penny stock arena, think that to make a significant profit in trading they need to buy or sell shares all at once. Although this strategy tends to minimize broker commissions, there are many more disadvantages than advantages to this strategy.A better approach, for a variety of reasons, is Dollar Cost Averaging (DCA). Penny stocks can be very volatile and unpredictable. To avoid the short-term ups and downs in many penny stocks, investors can benefit by using DCA. This is the process of buying additional shares of the stock at set intervals, regardless of the share price activity, rather than buying all the shares at one time.In DCA, more shares are purchased when prices are low, and fewer shares are bought when prices are high. This strategy lessens the risk of investing a large amount in a single investment at the wrong time. Your average price is lower than it might otherwise be if you bought all the shares when the price was at its peak. You still get some of the upside, but you avoid the bigger risk of buying all the shares at their highest prices.