How To Trade Penny Stock? Very Gingerly
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In the U.S. financial markets, the term penny stock ordinarily refers to any stock trading outside one of the major exchanges (NYSE, NASDAQ, or AMEX), and is often considered pejorative. However, the official SEC definition[1] of a penny stock is a low-priced, speculative security of a very small company, regardless of market capitalization or whether it trades on a securitized exchange (like NYSE or NASDAQ) or an “over the counter” listing service, such as the OTCBB or Pink Sheets. The terms penny stocks, microcap stocks, small caps, and nano caps are used interchangeably.
“Penny stock” is an age-old term that still hangs on, even though there is no longer any such thing as a stock share costing simply one penny. Penny stock refers to any stock that costs less than $5 (US) per share. These stocks are so inexpensive for a reason for - the companies are incredibly huge risks to invest in. How to trade penny stock? Very Mindfully. It is about the most high risk stock available legally.
No Shortcuts
Although you may read a lot of advertisements claiming how to trade penny stock with a minimum of obligation, don’ t you believe it. How to trade penny stock involves the same amount of diligence and work to learn about as any other accomplishment. You will not become an ace overnight, or even within the first year of trading.
Patience Is A Virtue
The best way to learn how to trade penny stock is by doing it. You can read “how to” articles and e-books forever, but there is nothing like the actual reality of playing the penny stock market to really make you digest what to do and what not to do. Don’t forget that when you make a bid for a penny stock, there may be a considerable lag time in having your order filled.
Mistakes Are A take ining Exposure
Previous to you begin to make your first bid on your first penny stock, you need to look at mistakes in a whole new way. Mistakes in the penny stock market are unavoidable. Don’t waste time blaming yourself for being stupid. Look on these mistakes as a appreciateing experience. Also, since you know you are going to make mistakes, merely put a portion of your money into penny stocks. Don’ t invest it all into penny stocks!
Finding Them
You won’t find much about the companies funded by penny stocks on the big stock market research sites such as NASDAQ or the new York Stock Exchange. In order to become acquainted with the latest on penny stocks, you want to look at two other sources, The Pink Sheets and the Over the Counter Bulletin Board Stocks (OTCBB). Pink Sheet penny stocks are not required to be registered with the SEC (Securities and Exchanges Commission). Therefore, they are thought to be a much more speculative investment than penny stocks listed in the OTCBB.
Many inexperienced investors are lured to penny stocks due to the low price and potential for fast growth which may be as high as several hundred percent in a few days. Similarly, harsh loss can occur and many penny stocks lose all of their value in the long term. Accordingly, the SEC warns that penny stocks are high risk investments and new investors should be aware of the risks involved. These risks embody limited liquidity, lack of financial reporting, and scams.
Since a penny stock has fewer shareholders, it is less ‘liquid’, meaning it will not trade as actively as a larger company. Any change in demand or supply of stock can create a lot of volatility in the stock price. This minimal liquidity can send a stock price soaring up readily or crashing down speedily. Minimal liquidity and volatility also makes penny stocks much more vulnerable to manipulation by management, market makers, or third parties. A minimal liquidity can also make it extremely difficult to sell a stock.
Do your research in advance of you invest and avoid “pump and dump” email scams.
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