Penny Stock Alerts – Trade Ideas Below 10 Cents
Penny stocks continue being an attractive investment option for most people. However, the high level of volatility, which is associated with this investment, makes it high risk.
This article defines penny stock, advantages and disadvantages of this form of investment and what to do in order to profit from it (Penny Stocks Alerts).
It also provides valuable internet resources that you can rely on when trading penny stocks.
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What are penny stocks?
Penny stocks are a common type of securities that have low value and which trade at less than $5 a share.
They are quite speculative and risky to invest in because of their low value. In most instances, these kinds of stocks are issued by startups and small companies whose market capitalization is not more than $200 million.
In the United states, penny stocks are quoted over the counter and traded as unlisted stocks, so there is a minimal possibility that you will find them being traded at major exchanges such as NASDAQ or the New York Stock Exchange.
Penny stocks are mainly traded through pink sheets, OTCBB and OTCLL.
Oil, gas and gold exploration companies that have minimal or no real assets mainly float Penny stocks. They are also used by companies that have erratic or no record of accomplishment of profit to raise operating capital.
Because of this, these kinds of stocks are regarded to be more volatile when compared to other kinds of stocks that are listed on major exchanges such as the New York Stock Exchange.
Benefits of Investing in Penny Stocks
Penny stocks can be an attractive option because of their volatility, which have the potential to turn in profits, especially if the company is taken over or if it succeeds.
You can reap huge profits if the price of the penny stock jumps from, say $0.05 to $3 overnight. This is something that happens at times, as there are numerous success stories that you can find in reputable message boards.
Drawbacks of trading Penny Stocks
The volatility of penny stocks is their main attraction to potential investors. However, this is also the main drawback for those who want to invest in these types of stocks.
Most of the businesses that float penny stocks are speculative in nature. You will find that the risks that emanate from these kind of stocks can be as a result of poor reporting by the penny stock firm or by low liquidity of the firm that is floating the shares.
- Low liquidity: Penny stocks are affected by low liquidity on everyday basis. It is important to understand that penny stocks are very specialized investments and a slight change in trade volumes may cause serious effects on stock market prices. These stocks are also sold infrequently and this makes it incredibly hard to sell them once you have. Moreover, there are instances where you will find it hard getting quotations of penny stocks, therefore making it very hard to value them. This means that if you do not exercise caution, there is a possibility that you will lose your entire investment.
- Poor reporting: The firms that float their stocks though pink sheets, OTCBB and OTCLL are not bound by stringent financial reporting requirements. There is no requirement for them to remain current or comply with SEC requirements. This is why penny stocks have become a treasure trove for individuals and firms that are delinquent.
How To Make Decent Returns From Penny Stocks
1. Buying long/selling short
You can make money from penny stocks in two ways: selling short or buying long. Buying long is where you invest in shares, hoping that their price will rise over time.
Many penny shares have risen in value between the rates of 30% to 70% and so there are profits to be made when you hold your shares for longer before selling them to interested investors.
Selling short is where you try looking for stocks that you believe will fall in price. Then, you can arrange to short them- that is taking out a loan from a broker and sell the stocks back into the market.
When the stock’s price plummets, you will make profits in the difference between the money you obtained from the sale of the shares and the cost of finances that you obtained from your broker.
Selling short penny stocks is ultra high risk. Serious investors should avoid shorting penny stocks! Use Penny stock alerts to find the best opportunity at any given time. Most traders avoid intraday trading penny stocks because of high transaction fees relative to price.
2. Pay attention to daily trading volumes
Even when it is attractive, you should not make a mistake of trading in penny stocks whose value is less than half a million in daily volumes. Volumes less than 500,000 are a clear indication of liquidity issues, especially when the price per stock is $0.5 or less.
The implication is that it will take you a long time before you get out of that situation.
3. Respect risk
Some penny stocks are thinly traded, so they can be very volatile. You have to understand that things change fast and this can mean big profits or losses.
You have to keep cool and respect the risk if you are to trade penny stocks and make profits. You cannot fight the risk that is associated with trading pennies; all that you can do is respecting it.
4. Maintain a trading journal
It is important that you set up a trading journal that shows whatever moves you make, the positions that you took and whether you made losses or profits in your trades.
A journal helps you keep track of what is happening and the strides that you have made over time. While you can use a pen and paper for this, there are some free to use online journals that you can use.
Important Internet Resources That Can Help You Trade Penny Stocks
Learn to Trade is an online resource that teaches interested person on how to trade penny stocks. The website is a reliable source of information and covers on the benefits, the lows and highs of penny stocks investment, penny stocks markets and many more.
It also covers technical aspects of the trade such as general stock indicator, market capitalization and how to do ratio or financial analysis.
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