Intelligent investors who like taking risks most of the time extend their ventures into penny trading. Penny stocking refers to the trading penny stocks which are companies trading with shares under $5. In most scenarios, penny stocks can be below $1. Penny stock trading involves buying these shares and selling them at a profit when the price rises. Investors, therefore, hold thousands of these shares due to their low prices. When sold, the small price increment can accumulate to a substantial return. Penny stocks are highly speculative because they lack liquidity and have large bid prices. However, not all who venture into penny stock trading succeed because it requires a high level of intelligence. Below is a guide to investing in penny stocks.
Investing In Penny Stocks
Select good penny stock broker
Brokers play a critical role in penny trading. They provide the vital infrastructure for trading. Perhaps, they also influence the trading patterns and behavior of other investors in themarket. Brokers charge commission per share. Therefore, it is essential to select a broker that charge a relatively low flat rate. There are several brokers to choose from. Some of the popular ones include Interactive Brokers, ChoiceTrade, Charles Swarp Corp and Scottrade among others. One can benefit handsomely by selecting a good broker.
Beware of scams
It is true that anything that comes with good returns has fraud and risks attached to it. Some investors will encounter things such as heavy and unofficial promotions, claims about insider information, vague newsletters and internet forums filled with misleading recommendations. Other traps to avoid include dump and pump schemes, long term averaging techniques and short and distort. It is goo to take only recommendations from honest brokers. Certain promoters may only act but in the end hike and inflate prices. Investors who are not keen may end up trapped in high-cost investments.
Determine the type of stocks to trade
The best way to determine the best stocks is by the use of stock screening tools. An investor can filter the stocks they want to trade in based on their strategy and goals. It pays to select the stocks within an investor’s area of specialization. Most stock screening tools are available in Finviz and OTC Markets sites.
While penny stock trading can be lucrative, it can easy to break the deal if caution is not taken. It is important to trade carefully and watch these penny stocks this year and the trading market. The above are some tips on how a beginner can get started with penny trading. Anyone can play it and succeed.