Want to increase potential income from your stock investment? Find a suitable type of stock based on your financial position, risk comfort level, and your investment goals. Are you the type of investor who is willing to take the risk for higher gain but only have a small amount to invest? Then penny stock trading is for you.
Penny stock is commonly defined as any stock that is trading for less than one dollar. Some defines it as any stock below fifty cents or a stock less than a dollar that’s trading off a major stock exchange. Others consider the stocks traded in “Pink Sheets” and “Over the Counter Bulletin Board (OTCBB)” as the formal penny stocks. It does not really matter where it’s being traded because the defining factor is the price of the stock.
Investors also use the terms nano, micro, and small caps to refer to penny stocks. Penny stocks are stocks from up-and-coming companies with small capitalization but have limitless potential which might result to higher stock gains if and when that potential materializes. Most penny stocks have a market cap of less than $500 million and are highly speculative.
You only require a small initial investment to buy penny stock. Lower investment requirement does not equate to low risk investment, it only means you can start small. The risk is that less information is available to evaluate the company unlike with larger company that has stocks trading at more than a dollar. These companies have their reports filed with SEC available for your review before investing. You have to spend more time to study penny stock companies to reduce the risk.
Ensure that a penny stock company has made their financial report available to the public. Answer the following questions when conducting your review; are the financial statements certified by auditors, does the company have enough money to keep operating?
The minimal requirement being implemented by Pink Sheet and OTCBB increase the risk in investing to penny stock. There are no auditing standards, no notification in change of ownership or major changes in the corporation that make penny stocks vulnerable to fraud. This makes penny stocks to have limited liquidity.
Penny stocks limited liquidity can make stock prices sharply change by increasing rapidly or crashing suddenly without reason. It can also be easily controlled and manipulated by third partied and the corporation’s management. Its low liquidity often also results in difficulty to find buyers of penny stocks.
With the risks involve, investors’ still find penny stock attractive because they can invest small amount with several companies which lessen the risk of losing. You may be gaining from one and losing from the other but at the end of the day still make a profit.
Penny stock is also a good training ground for first time investors as it only requires a little initial investment. Earning will boost your morale while it will not hurt as much if you lose.
Now that you have decided to invest in penny stock, when is the best time to sell? Timing is the key. Monitor your investment closely; if you wait too long, the stock value might drop. If you’re anticipating that the value will still go up, then just sell partial of your stocks. In this way if the stock value goes up your gain increases and if the stock value goes down you reduce potential loss as you already cash out while the stock value was high.
Some investors are using their emotions in cashing out. They worry that the stock will crash and then panic and sell too soon. Keep your emotions in place and decide based on information you gathered.
Re-invest your original investment plus your profit. Higher investment will provide you more leverage and flexibility. You might lose in your second investment but still secure your original investment by cashing out before the stock value falls down too low. Perform the same level of diligence in selecting your next penny stock investment. Don’t be over confident just because you succeed in your first venture.
Invest wisely. Conduct ample research about the company to determine if they can deliver what they promise. Monitor your stock and sell at the best possible time. Remember that risk is only present if you do not know what you’re doing so it’s a good idea to learn first how the penny stock trading system works before investing.