How to invest in penny stocks

[Andy Rodic]

The term penny stocks generally stands for any stocks that trade outside the major stock exchanges and is taken as ‘deprecatory’. The major stock exchanges would include: NASDAQ,
AMEX, or NYSE. The term is also often used interchangeably with small caps and
nano caps. The title of penny stock yet should be determined by the share price
instead the listing service or market capitalization. Many companies show false
track records to public. Even some of them suffer from bankruptcy. There are a number of micro cap companies
that pay individuals to publicize the company stock in different
media, like newsletters, financial television and radio shows. They
can also send spam email trying to persuade you to purchase particular stock.
When various of these companies will file for an IPO, many others will start
off trading on the OTC BB as a penny stock.

The easiest way to get your foot into the market is to get into a company that is trading under $5 a share.

Stocks that no longer trade over $1 on the Nasdaq

These take account of those companies that fell from grace (Enron). Though it is possible that they may see better days in the future, the likelihood is stacked against them. It’s generally best to keep away from
trading these penny stocks.
If you still want to trade, then you can wait until the stock begins to
rebound.

The following tips to help the penny stock trader avoid making costly mistakes.

Due Diligence

It’s not so easy to find information on these companies and hard to find out what is legit and what isn’t. Many websites out there offer free ideas and do all the research for you. But it is significant that you do
your own research too. Observe the company and research it everyday if you are
holding on to it. Ensure whether or not ownership has changed and if there is
any new financial news.

Low investments means low risk

Don’t begin with a big investment. It is advised to play with what you can afford. This is great for fresher. Sometimes a penny stock can develop into a huge major company and finish up trading on a major exchange. If
you hold on to one like this, the profits will startle you.

Do your own research

There are lots of small caps or microcap stocks in which you can invest that give all the relevant and audited financial statements that you necessitate, in addition genuine press releases. You should observe at all the potential companies out there
trading for just a couple of dollars or even under a dollar. Many have been
able to double or even triple their investments on penny
stocks. Don’t trust the hype, and protect your capital.

Size matters

There are numerous penny stocks. The size of your position should exceed $2000 - $3000. Although this may not appear pretty much it’s not strange for a $0.10 company to drop to $0.05. That's a 50% loss. If your position is
$10 000, a 50% haircut leaves you with only $5000. Cut your losses to a
minimum. If the company has done well, and you are up, either take your profits
off the table, or add to your position, and be sure to reset your stop loss to
protect your previous profits. Capital preservation is vital for unbeaten
trading.

Make your own strategy

Make a plan before you buy. Make sure why you are
buying. What is your exit strategy? Where is your stop loss? At what point will
you take your profit? Record these answers before you place that buy order.