When most people think of stock trading, they imagine million dollar brokers trading stocks of large companies like Amazon (NYSE: AMZN), AT&T (NYSE: T), and Tesla (NASDAQ: TSLA) . But trading like a pro doesn’t necessarily require millions of dollars in free capital in your brokerage account. They are also looking for some penny stocks to buy now that offer both variety and diversity.
Penny stocks, sometimes referred to as “micro-cap” or “nano-cap” stocks, are low-value stocks representing smaller companies. As the name suggests, these stocks are often less than $ 2 per share, making them much more accessible to new investors or those with less capital.
Preview: Penny Stocks
Penny stocks are stocks of small companies that typically trade for much less money than stocks of large companies. Despite the name, the term “penny share” can be applied to all stocks under $ 5. A penny stock can be sold on an over-the-counter (OTC) exchange, but many are also sold on SEC-regulated exchanges like the New York Stock Exchange (NYSE).
Penny stocks have always been the subject of scams and artificial price inflation due to their ease of handling. One of the most popular forms of penny stock fraud is the “pump and dump” system. During a pump and dump, marketers who own shares of a particular stock are intentionally spreading false or misleading information about the company issuing the stock, resulting in a sharp increase in the price of the stock. ‘action. Once the price has risen, holders “dump” the inflated-price shares on those who buy them after hearing the news.
The increasing use of social media websites like Twitter and Facebook has increased the cases of pump and dump systems. It is now more important than ever for investors to do their due diligence before making a purchase.
Penny stocks are also attractive to investors because they exhibit above-average volatility. The volatility of a stock describes the frequency and magnitude of an increase or decrease in the value of a stock during a normal trading day.
High volatility means that there is a lot of profit margin when buying and selling penny stocks. For example, if you buy 1,000 X stocks for $ 1 and sell them for $ 2, you doubled your money and made $ 1,000. However, this high volatility also means that it is possible to lose money quickly. When you find penny stocks to buy right now, you may also need to keep your account in the meantime and / or sell just as quickly.
Features to look for in Penny Stock
Not all penny stocks are such a good investment. All penny stocks are risky by nature, but you can limit your risk. When looking for penny stocks to buy now, look for these 5 key features:
- Trading on a large stock exchange: Most penny stocks are sold in the over-the-counter markets or through the over-the-counter notice board. While these stocks are generally very cheap (often traded for pennies against the dollar), they also benefit from much lower watch levels. If you are buying your first penny stocks, start by researching stocks on major stock exchanges, such as the NYSE or NASDAQ. Shares listed on these exchanges must meet minimum requirements set by the Securities Exchange Commission, which greatly reduces the likelihood that you will be scammed.
- The company seems legitimate: Any business you choose to invest in needs more than a Facebook page or social media account to advertise its presence online. Check the news for company information and even search for consumer reviews. This type of information lets you know if the business is worth your time and money.
- Find the catalyst: You have to know Why the stock is up in the first place. Look for a product ad or something significant that would give you an idea of why the price is going up or down. As you research the company, you may come across an aforementioned “pump and dump” system. If you buy in and out quickly, you can make money. If you are not prepared for such a scheme, you could easily lose your money.
- A high daily trading volume. Many investors turn to penny stocks in hopes of making money from swing trading or day trading. However, what some people forget is that if you want to sell a stock, there has to be someone in the market ready to buy it. Use a stock filter to find penny stocks with higher average daily volumes. Higher volume will help you sell your inventory when you want to, not when prices are at their lowest.
- Positive earnings per share. The earnings per share (EPS) value of a share is equal to the company’s current profit divided by the current number of shares outstanding. If possible, look for a stock with positive EPS – this indicates the business is currently profitable.
Most of the penny stocks represent smaller or newly incorporated companies, so this is not always possible. If you decide to invest in a stock with negative EPS, make sure it has a manageable level of leverage.
The power of pennies
Investing in penny stocks can be exciting. With a wide array of sector options, higher volatility, and hundreds of stocks under $ 20, it’s easy to see why so many investors are drawn to the opportunities that penny stocks represent. However, it’s also important to remember that penny stocks are very risky and should never constitute the majority of your portfolio.
Try not to fall for the false narrative that companies like Apple and Microsoft were once penny stocks. This is simply not true. Microsoft’s IPO was priced at $ 21.00 – in 1986. Remember to use total market funds and index funds as the basis of your portfolio as they have been proven to work well while a bundle of penny stocks is not. This will give you room for growth while protecting your future.
Don’t be afraid, however, to invest in a few solid penny stocks and hope they increase in value. Watch these stocks carefully so that you can sell them if they are going down or up quickly. While a stop-loss order can avoid losses, a stop-limit order can guarantee quick profits.
Best Online Brokers for Penny Stocks
It doesn’t matter if you trade penny stocks or are looking for stocks under $ 10 to add to your long-term portfolio, you need to open a brokerage account before you can start trading. Your broker will execute buy and sell orders on your behalf, as traders cannot buy or sell stocks directly in the market.
Think you’ve found penny stocks to buy right now and need a brokerage account? Consider our favorites below.
Trading Penny Stocks
Timing the market, entering and exiting at the right time is always ideal when trading penny stocks. And if penny stocks are part of your game, you might want to learn how to trade professionally through technical analysis so that you can enter troughs, retracements, breakouts or with action setups. price as confirmation to increase your profitability.
We have an established trader Ezekiel to chew founder of Asia Forex Mentor, who makes 6-digit trading and trains bank traders behind the scenes, to share with us how to be successful in trading and investing.
Ezekiel thinks that there is three key aspects for successful trading:
1. You must first learn to read graphics. And one of the best ways to learn this is through price action; the technique that the majority of professional traders use. Once you have learned to read charts you will know why the market is going up, down or sideways and then you will recognize which strategy to implement in that direction.
2. Trade with a proven trading strategy or a combination of strategies. A proven strategy is one that has been fully back-tested and consistently proven. Only then will you have the confidence to stick to it during lulls.
3. Have a strong trading system. One which is defined not only by the technical aspects but also by the business activity behind the trade; a properly structured business that is consistent with the proven overall business plan. Contrary to what most new traders think, trading is not just about strategies, but the system itself also goes a long way in becoming a successful trader.
If you want to learn the precise trading system that Ezekiel uses to make a 6-digit trade and that he uses to train banks, check out the Asia Forex Mentor One Core program, which has turned many new traders into professionals.
Frequently Asked Questions
Can You Get Rich With Penny Stocks?
You cannot get rich with penny stocks, but you can diversify your portfolio with a few penny stocks. There are times when companies are recovering from bankruptcy or financial troubles to step out of the ranks of penny stocks. You can also make smart trades when the penny stocks suddenly rise, giving you a quick profit. However, you cannot get rich just with penny stocks. Every investment portfolio should be diversified, comprising a few penny stocks and several other assets.
How do I invest $ 1000 in penny stocks?
If you plan to put $ 1,000 in penny stocks, you need to spread your purchases across multiple stocks across many different sectors. Pick a few penny stocks to buy now, but don’t forget to invest in stocks that cost more than a few cents. Because a penny stock can cost as much as $ 2 a share, you can avoid stocks that could drop too low, be written off, or become virtually worthless.