If you have been toying with the idea of trading penny stocks but don’t know what the process for doing so exactly is, you should find the information in this article to be immensely valuable.
What are penny stocks? In basic terms, penny stocks are simply stocks that sell for less than $5 or $1 a share. They make an attractive investment opportunity for investors who lack the capital to invest in higher priced stocks and commodities.
Here are the five steps you can follow to start trading penny stocks today:
Step #1 – Investigate
The first thing you need to do before investing in a penny stock is investigate the company behind it. Investing in penny stocks means that you will often be investing in companies that are small and not yet proven. Even though researching these kinds of companies can be more difficult, it can be done. Specifically, research their financial health and the products and services they sell.
The best places to investigate penny stock companies will include Google Finance, Yahoo Finance, and the OTC Bulletin Board.
Step #2 – Open An Account With A Brokerage Service
Before you can begin trading penny stocks, you will need to open an account with a broker. Make sure you with a broker that has low fees, few limits on how much you can trade, and constant monitoring of the price movements of each penny stock.
Step #3 – Follow A Stock’s Price
Before you actually invest in a stock, it may be a good idea to follow the price fluctuations one or more for an extended period of time, such as a week. This will give you a good idea of how the market works versus running into it blind. Sooner or later, you will begin to identify patterns that enable you to predict when a stock’s price is going to rise and when it is going to fall.
Step #4 – Avoid Pump and Dump Schemes
It’s unfortunate, but pump and dump schemes are prevalent with penny stocks, and you will want to avoid them especially as a first time trader.
While there is no surefire way to always identify a pump and dump scheme happening before your eyes, usually the easiest way is when a particular company is being promoted and praised as a huge winner when its stock price is still very low.
Step #5 – Don’t Treat Penny Stocks As Long Term Investments
Last but not least, before you make your first trade, remember that penny stocks are not long term investments. In other words, penny stocks are not something you want to add to your investment portfolio.
Rather, penny stocks are meant for short term trades where you can buy and sell on a moment’s notice. You have to be prepared to constantly monitor price movements and to give each trade your full attention.
Trading Penny Stocks Today
If you’ve never traded penny stocks before, there’s a lot more research out there for you to do, but hopefully this article has given you a basic idea of what the process entails.