Triston Martin
Nov 10, 2022
The stock exchange market does not exist just for big sharks and bears. It has ample provisions for smaller traders. Penny stocks trade for less than $5 per share and are comparatively more liquid than larger shares.
The Securities and Exchange Commission (SEC) updated the limit of penny stocks from shares that trade at $1 to $5 in a bid to widen further the difference between these over-the-counter shares and those allowed on the trading floor.
The difference in definition is sometimes a dilemma for some traders. The SEC added a third conclusive limit for penny stocks: their parent companies must have a market capitalization below $250 million.
The answer to this is not straightforward. Like any other investment, penny stocks have the probability of risk. However, for penny stocks, the risk only gets higher. The reasons for this may be:
While there are numerous success stories of investors becoming wealthy by investing in penny stocks, take caution. There are a lot of scammers in the penny stock market, so do not spend more than you are willing to lose.
This may sound contradictory, right? Well, no. The fact that the company is unwilling to adhere to SEC rules and regulations is already a red flag. OTC penny stocks are just like OTC drugs; convenient but unsafe.
Scammers will mostly get hold of OTC penny stocks and sell them to unsuspecting investors looking to make thousands of dollars daily. While this remains a possible reality, always ensure that you pick penny stocks with the least risk.
Perform due diligence while researching the best penny stocks for your portfolio. Consider secure exchanges such as NYSE or NASDAQ.
The digital revolution did not leave the stock exchange market behind. By employing software that can scan the market for penny stocks that you want, you can make better business decisions faster.
Some software allows you to set the parameters you wish to use to filter your results, such as:
You can further filter your results to show penny stocks with a volume of less than $1 million or a float of less than $80 million.
These two terms may seem the same; a penny stock trader does what a penny stock investor does. However, there lies a significant difference that could determine whether you make money or not.
Trading penny stocks means that you buy and sell these shares at a faster and more volatile rate than investing in them. It takes you a while longer to get returns when investing in penny stocks. Most penny stock traders prefer to let go of these stocks quickly to minimize risk.
Investing in penny stocks means you bet on the company itself, its fundamental beliefs, code of conduct, financial statements, and profitability. It is important to note that penny stocks are volatile, meaning their prices go up and down quickly. It is not worthwhile to invest in penny stocks, that is, buying and holding them for a specific period, but rather it’s best to buy and sell as soon as possible.
Consider a penny stock called Novavax that gained skyrocketing popularity during COVID-19. From selling at less than $5 per share to $300 and above, NVAX proved that investing in penny stocks may be risky but highly profitable.
Whichever strategy you prefer, select the one that guarantees you the highest returns.
The internet is teeming with trading courses for penny stock enthusiasts. The famous byline most creators of these courses use is that ‘it took me years to get to this point.’ The point? Earning $400k quarterly from trading penny stocks. Learn from them.
Education is a never-ending, progressive process. You never know too much. Drink in every valuable piece of information you receive on the subject, weigh it intrinsically and logically, then practice it using the least money possible. If a penny stock goes for $3.40, don’t invest $7 as a first-timer.
Educate yourself on the stock market. Be up-to-date with trends in penny stock trading, and lean on breaking news. Understand what drives the changes you see in the stock market and use them to your advantage.
This leads us to our next point; don’t be in a hurry to trade penny stocks. When you read through most prolific traders’ experience with penny stock trading, you’ll see that it doesn’t come in a day.
Have an attainable, beginner-friendly daily goal, and strive to achieve it. Continued success should encourage you to increase your daily goal, but even then, don’t be in a rush.
Fallen angels used to be glorious angels once but fell from grace. The same applies to penny stocks. Take care not to be trapped by stocks that were once strong but are now considered junk.
However, some investors prefer this route as these shares will continue to pay dividends or bounce back to investment-grade levels. Indeed, it could just be a case of a strong company running into unfortunate times. Investors have reaped millions from investing in fallen angels. Again, do your research.
Investing and trading are always risky. Add to that volatile penny stock whose price may change any minute, and you get an even riskier investment option. If you are risk-averse, consider other alternatives, such as fractional shares that let you invest with what you have and not necessarily the total value of the share.
However, the success stories point to a market that requires patience and persistence, but things work out in the end. Some company stocks, such as True Religion Jeans, saw a 5000% increase in share price within just a few years.
Pick your preference wisely.
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