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How to invest in penny stocks and make money? Make money with penny stocks!

Making money with penny stocks can be a lot harder than what most people think because there are many technicalities that people have to learn and become comfortable with. There are a number of different types of these stocks and figuring out how to use them to gain as much as you can from them can be a little difficult. Most people make the mistake of falling prey to expert investors who try to convince people to invest in stocks if making a lot of money in a short period is their goal. Investing in penny stocks should be made when you possess the knowledge to clearly understand what they really are, as well as the pros and cons of such an investment.

People usually fear what they do not know. You cannot judge or label something until you get to know it.

First impressions are a perfect example. One person may have preconceived notions about somebody who they don’t know much about. Once they get to know that person, they realize that their first impressions were invariably false.

The same thing applies with penny stocks. Penny stocks get a bad first impression. They are quickly written off. The purpose of this article is to get past that first impression, to really dig deep and see if these bad impressions are warranted or not.

Below are some of the myths that always seem to shadow penny stocks.

Myth #1 “You’ll lose all your money if you trade penny stocks.”

This stems from the belief that trading penny stocks is risky. Actually, any form of investing in stocks will always invariably involve risk. The only way you will lose all your money trading penny stocks is if you don’t bother trying to minimize the risk. The key is to look to MINIMIZE that risk! It’s as simple as that.

For example, starting your own business incurs high risk. Does that stop people from doing it? No. And you know what? The people who succeed in starting their own business are the ones who minimize the risk. They do that by researching on how to successfully start their own business by reading, talking with people and taking action. The same thing applies to penny stocks.

You will not lose all your money by trading penny stocks provided that you minimize your risk by researching, learning, and practicing trading before starting.

Myth #2 “There’s not enough liquidity in penny stocks.”

What do people mean by liquidity? Liquidity simply means having enough volume to easily buy and sell your shares. For example, if a penny stock only has two trades, its liquidity is said to be low. There are not enough traders to buy and sell.

However, if a stock is experiencing huge amounts of trades, thereby indicating the presence of a large number of traders, its liquidity is said to be high because you can easily buy and sell shares.

Looking at an after market report recap of penny stocks will reflect that there is more than enough liquidity in penny stocks.

Myth #3 “It’s easy to make money in penny stocks.”

When it comes to penny stocks, the math looks very appealing. Buy shares at a penny and sell them for two cents. There, you just doubled your money. If it were that easy, people would be millionaires.

The fact of the matter is that trading penny stocks can be very rewarding. However, that reward goes to those who educate themselves and paper trade (practice trading with fake money to gain experience), in other words, goes to those who are willing to pay the price to learn.

That’s precisely the reason why some people are very negative toward penny stocks. They have been attracted to the potential of making money, only to rush in without any sort of training or education and become disillusioned and embittered.

Despite all the stereotypes that seem to follow penny stocks, there’s one aspect that everyone agrees on. Penny stocks involve high risk and high reward. There’s no doubt about that. The key to getting that high reward is to learn how to minimize the high risk. It’s as simple as that. It’s as simple as that.

If you are planning on investment in such stocks, you need to research the current market trends, which means 2011. The most attractive stocks that have really caught fire this year belong to the finance and information technology sectors. When you start trading in such stocks, your success is largely based on how accurately you can predict the movement of the stocks, whether upwards or downwards. However, this comes naturally only to some of us and the rest have to spend a lot of time practicing and developing the confidence to make risky decisions.

However, these stocks are very unpredictable, which is why you have to be very careful because there is always the chance that you can lose everything you’ve earned in a blink of an eye. Moreover, if you are having a hard time figuring out the market for these types of stocks there are plenty of specialized expert brokers who are available to offer their assistance and guidance. They have more insight and the latest information on the market and have the ability to predict the trends in a more efficient manner. However, there is never a guarantee that these brokers will be correct in their predictions because of how volatile the market for penny stocks is. The bottom line is that when dealing with these stocks, you should always aim to invest small amounts to keep your chance of loss at a minimum.

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26. Jan, 2012
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What are penny stocks

What are Penny stocks

Penny stocks are stocks that cost less than $5 to buy and sell. These stocks are available online through discount stockbrokers. The advantage of penny stocks is that they have lower prices than regular stocks, making it easy to own many of them. Buying penny stocks through online discount stockbrokers isn’t difficult, but it can be risky.

To calculate the market capitalization of a company (the market cap) you must multiply the stock price of the company by the amount of shares that are outstanding. By carrying out this calculation you can find out what the total dollar value of all shares in the company are at any given moment in time. Penny stocks are not traded on a stock exchange like other stocks but they are traded in the over-the-counter (OTC) market. For the trading of most stock an agent will act on the investors behalf and arrange a transaction directly between the investor and a third party. The broker then receives a commission for facilitating the trade.

A large proportion of all penny transactions are charged by brokers as principle transactions. This means that the broker is not paid any commission but rather makes its money on the spread, and by buying and selling at advantageous times. There is no single price at which penny stocks are bought and sold, but rather there are a number of different prices. The difference between the bid and ask price is known as the spread. The spread of many penny stocks are usually around 25-33% but can often be 50-100% or even more. There are also always two bid and two ask prices, these are known as the inside and outside bid and ask. Keep in mind that it is the outside bid and ask that is of most interest generally. Penny stocks are also subject to mark up pricing. This is where a broker has held the penny stock in its account and has therefore taken some of the risk associated with market price fluctuation.

Although penny stocks are quite complicated and there are many problems associated with trading penny stocks as well as millions of dollars of loss, many companies still trade in them because they can help for example, struggling companies just starting up. The best way of finding a good investment is by consulting with your broker. However in the penny stock market be very wary of brokers who are only trying to sell and may not have your best interests in mind.

If you want to get involved trading and buying penny stock then it is always best to educate yourself first before you actually start trading. It doesn’t take that long to learn the fundamentals of penny stock trading but it is important that any new investor first get a grip on such vital information because it will serve them well going forward into the future. Once you have educated yourself to the point that you feel that you are ready to trade penny stock then you simply need to open an account with a brokerage, make a deposit and start trading.

Some of the best brokerages allow you to open an account online and use their online software to make trades thus taking the human element almost entirely out of the picture. You should be careful though because trading this way is so easy, and it can become easy to overlook the fact that you are dealing with real money and not just pixels on a screen. In the end you should just remember that to succeed with trading penny stocks you must learn to make smart and strategic decisions over time, and if you can do this you should have no trouble eventually making a profit with penny stocks.

Low Liquidity, High Risk

Unlike the stocks listed in major exchanges such as the S&P 500, penny stocks have very low daily volume. What this means is that you can buy shares of a penny stock, and in some cases have no one to sell it to! On average, penny stocks have volume equivalent to a few thousand dollars being exchanged every day. You want and sometimes need good liquidity in a stock so you can make a quick entry and exit, especially in penny stocks where the stock price can tank on a whim.

Pump and Dumpers

If you ever receive an email or possibly an advertisement that claims you need to immediately “invest” in a penny stock, you’ve been a target of pumping and dumping. The idea behind this is to create unfounded hype for a penny stock the pumper already owns, then as his victims buy into his hype and drive up the price of the stock significantly, the pumper sells his shares for a large profit. Meanwhile, those that bought into the hype will quickly lose their money as the upward stock momentum drops and the stock price heads south.

Inability to do Homework
Penny stocks differ from the stocks on major exchanges in that they have little to no following at all. You almost never find a penny stock being talked about by the financial media. There is usually no analyst opinions on penny stocks, which should put up an immediate red flag. If this company were actually worth something, wouldn’t analysts be interested in it?

Tips & Warnings

  • Research penny stocks thoroughly before buying them. Research the company behind the stock and understand their business and management.
  • Monitor the price of penny stocks in your portfolio several times a day. These stocks can fall in price very rapidly and you can take a huge loss unless you’re vigilant.
  • Be careful about penny stocks recommendations you receive through email messages or individuals online that you do not know. You can be defrauded that way.
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21. Dec, 2010