The penny stock market, also known as the micro-cap market, is a highly volatile trading platform, designed for short-term revenue gain. Traders usually defined as a stock that trades at less than $5.00 a share. Companies trading penny stock may have liquidity and profit issues, have small capitalization, or a limited following. Some companies trading penny stocks are gauging investor interests looking to make a jump to the traditional stock exchanges. Companies that offer penny stock tend to be small, and are subject to limited listing requirements, filing, and regulatory standards. Most penny stocks are traded over the counter (OTC) through stock quote services. |
Investors with a high tolerance for risk like penny stocks. Since the companies that offer penny stocks may have a high debt to liquidity ratio or limited assets and lower earnings, there is more risk involved when purchasing the stock. Since these stocks are inexpensive, investors can purchase high volumes of the stock in hopes of selling it a profit. With penny stock, modest gains can begin to add up quickly. Alternatively, losses can quickly drain your account and your balance.
When selecting your penny stock, only buy stocks with good volume. It may be difficult to get in and out of a position if the stock is only trading at a minimum volume per day. Most penny stock trading experts recommend trading stocks with an average of at least 1,000,000 shares every day. Stay away from “thin” volumes. Successful penny stock market investors create and adhere to specific guidelines for their purchases. Whatever you are using to guide your purchasing, stick to your criteria and don’t stray from it. Use this formula to help you decide when you should sell your penny stock. Know when to get out, and don’t let your losses pile up. Be disciplined in your trading.
It can be difficult to find unbiased information about the penny stock market. Be sure to conduct independent research. Since penny stocks are not regulated as closely as traditional stocks traded on a major exchange, you need to know exactly what you are putting your money into. Talk to other investors, research online, and make some phone calls so you have a comprehensive of the company’s business model and financials. Be wary of companies and stocks that pay investors and writers to promote their company, in order to raise stock prices. Be judicious about where you are getting your information.
The penny stock market is volatile, so diversification is as important traditional stock. Develop a strategy that allows you to invest in a number of different companies, industries and area. Never put more than 20 percent of your money in any single company. Take advantage of stop orders. Make sure you have standing stop order in place for your portfolio. When dealing with penny stock, a market downturn can drain your account quickly.
There is potential for big profits when investing in the penny stock market. If you are able to handle the risks and have the discipline it needs to make sound decisions, you can reap big rewards.
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