Penny stocks are an enticing way to get into stocks because you don’t need that much to invest, but can still make a profit. But the stock game, and an exciting game at that, isn’t easy and you need to learn and study what it’s all about before you even think of trading. And like a game or sport, you want the odds to be in your favor to win.
Let’s first get our feet grounded a bit to know more about penny stocks.
What are penny stocks?
According to the Securities Exchange Commission (SEC), the penny stock definition is any trading under $5.00 per share. The reason they’ve gained so much popularity over the years is because they’re cheap. Small traders don’t have the capital to invest in mega companies, so they invest in smaller companies. These stocks might require a different approach than other stocks. Penny stocks can also be risky and volatile. If the price is spiking high and low and moving quickly and/or erratically, the stock would be considered volatile. This can happen in a very brief time, sometimes in just hours or even minutes. For the record, this can either work for you or against you.
How risky is it?
Living is risky, especially if you tend to live haphazardly. No one is going to lie to you here and tell you penny stocks don’t come with their own risks, so you shouldn’t act haphazardly. But risk is just the nature of all stocks. So, we’ll give you some starting tips that you really need to follow to lessen your risks.
Trust no one:
It sounds cool that you got an inside tip from someone. But don’t take things at face value and check that tip up by yourself no matter who or where you got it from.
Check the company:
You need to know what to check for. It’s easy to present a business concept, but how well that company is doing is another story. How well are they and their growing market share expanding? Do they have solid intellectual property, as well as copyrights and trademark? Are they prepared for the long haul against competition? It can happen that you invest penny stocks in a struggling company that takes a surprising turn for the better. You need guidance on which companies are worth investing in and basically learn how to invest.
Start with paper trading:
If you really want to get good at penny stocks you can start with what is called paper trading. In this trading, you’re investing in real companies but with no money or make believe money; hence the name paper trading. You won’t lose a penny and at the same time hone your skills.
Patience
The answer to ‘can you make money with penny stocks?’ is always a yes. But you need to understand better the ins and outs of it and the different strategies used. You also need to learn more about patterns on the market and how to spot them. Your best way to make money is by applying the rules of general trading, and remain patient as well.