If you’ve ever put a large sum of money into a savings account, you know just how slow money grows with low interest rates. Unfortunately, in this economy, most banks only offer low interest rates, ranging from as low as .5 percent to 4 percent. If you’re thinking about investing to make more money off your money, consider trading penny stocks. Not sure how to trade penny stocks, or even what they are? Keep reading to learn more.
Source: FlickrWhat Are Penny Stocks?
Penny stocks are in their own different area of the financial world. Before you can start trading penny stocks, you need to know what they are. Penny stocks are basically low-priced and small-capped stocks. Despite their name, however, penny stocks rarely cost just one cent. In general, penny stocks are under five dollars. Penny stocks are typically considered risky.
Where’s the Payoff?
You may be thinking, “If penny stocks are high-risk, why would anyone want to invest in them?” The answer lies in the volatility of penny stocks.
Penny stocks are known to fluctuate vigorously in price, which can be both a good and bad thing, depending on your luck. There have been cases where people purchased stocks for eight cents each and end up selling them for eight dollars each and just a few weeks, making it a lucrative investment. Unfortunately, there have also been cases where people have a lost a lot of money in just a few weeks.
But that doesn’t mean you should avoid them at all costs. It simply means you must be a smart, diligent, and self-reliant investor to find their benefit.
How to Trade Penny Stocks
Don’t go about investing in penny stocks like they’re lottery tickets. Ensure that you do your research before you invest in a penny stock, and pick penny stocks that are profitable and have solid earnings growth. Focus on penny stocks that are making 52-week highs.
Also, ensure that you don’t make the mistake of subscribing to free newsletters about penny stocks. Most of the time, the writers of these newsletters are getting paid to write about a stock to gain more exposure for a company, so the company’s investors will be satisfied. These newsletters make false claims and promises about penny stocks that simply aren’t worthwhile.
Many investors make the mistake of waiting far too long before selling or trading. If there comes a time where you can make a 20 percent or 30 percent return on a penny stock, in most cases, you should sell quickly. Such a scenario can happen in a few days of purchasing a penny stock. Don’t get greedy and aim for a 500 percent or 1,000 percent return, as it may never happen. Just take any profits and move on from the penny stock.
Have a relatively flexible portfolio. By all means do not put all your money in penny stocks. Overall, when it comes to investing in penny stocks, it’s best to be somewhat critical. Always do your own research and ensure you diversify so you’re never in the position to lose everything.
Even though penny stocks have a bad reputation, there is a whole lot of profit to be earned if you do your research and play your cards right. If you just look, you’ll find many success stories of people who have made hundreds, thousands, and even millions of dollars off of cheap penny stocks in just a few weeks time.