BROWSE

What are Penny Stocks and How Do They Work?

 

It doesn’t seem so long ago that most people saw investment and stock trading as activities only for the most elite and wealthy members of our community. Before the advent of the internet, it was rare to see any individual trader in the market, because often the NYSE and other exchanges would be populated almost entirely by fund owners and business leaders. These days, the digital transformation age has allowed people of all ages and backgrounds to get involved in the industry with minimal initial investment. 

The key to success is often figuring out where to begin. For a lot of people new to the environment, the concept of penny stocks is appealing. After all, if you don’t have a lot of cash to spend, it makes sense to try and get your money’s worth on a cheap asset with a lot of room for growth. However, there’s more to the art of dealing with low-priced shares than most people realize. Although these securities have some wonderful benefits to consider, they also have a lot of risk to think about too. Here’s what you need to know to get started. 

Why are Cheap Stocks so Controversial?

There are plenty of stories out there of professionals and financial experts making their fortune in the cheap securities world. Some of the biggest investors in the world started with a few thousand dollars placed in the right cheap securities. But this doesn’t mean that a cheap investment is a guarantee of a big win. The reality is that penny stocks can turn a small amount of cash into a huge sum of money – but it could also easily wipe out most of your financial budget. 

Look up cheap securities online, and you’ll find plenty of forums talking about how dangerous these investments can be. After all, they’re high in volatility, because most of the time, the company in question is new and lacks a lot of background information. At the same time, you can struggle to get rid of the stocks you want to sell when the price is right. On top of that, cheaper assets have been the source of some controversy because of over-the-counter markets. Unregulated over-the-counter markets can be an excellent way to access cheaper investment opportunities, but they lack the benefits of buying through an exchange or similar service. This is why many people still associate cheaper securities with scams.

Can You Make Money on Small Investments?

If you know the industry well and you know which signs to look out for when checking for evidence that a security is going to gain or lose value, then you’re well positioned to make money on any kind of investment. If you’ve taken the time to learn your space, then you’re less likely to fall victim to common scams and warning signs. 

Used correctly, the right affordable shares will diversify your portfolio and give you access to new channels of making money – but it’s always best to do plenty of research in advance. People who make the mistake of follow top tips guides from people they don’t know online will almost always fall victim to a scam or a con. The same can be said for those who rush in without taking the time to properly research both their chosen share, and the market they’re selling in. You can avoid some big mistakes and increase your chances of making real money by learning as much of the relevant wording as possible. For instance, know how to identify between a regulated and non-regulated exchange, and make sure you have a broker you can trust to help you set things like stop loss limits on your investments. It also helps to have solid strategies for trading these stocks from day one. 

Designing Your Profit Strategy

Like any kind of investing, there’s no one-size-fits-all strategy guaranteed to make you a lot of money, but you can begin experimenting with plans to see what works best for you. Start by deciding what kind of company you’re going to invest in. This means avoiding the trending hot industry of the moment, and looking at things you’re passionate about, and well-informed in.

It’s also helpful to have a strategy for practicing your trading skills. Using paper trading and demo trading tools will allow you to determine whether your strategies for when to buy and sell are going to pay off or not. Though this initial testing phase can be a little frustrating if you’re looking to jump in and start making money, it will definitely make you feel more confident, and could help you to avoid losing some serious cash too.