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Beginners Guide to Trading and Investing in Penny Stocks

Updated on January 24, 2011

Penny Stocks

Beginners Guide to Making Money with Penny Stocks

Do you want to learn how to trade and invest in penny stocks? Penny stock investing is a great way to make money, but it can be risky, therefore I have published this Beginners Guide in Trading and Investing in Penny Stocks.

Penny Stocks are stocks traded for under $2 and they represent the small cap companies. They trade on the OTCBB so you will not find them on the major stock exchanges. They are very cheap stocks and normally come for businesses needing capital. They are a very risky investment as the business can go under and leave you with a stock worth nothing. However that being said penny stock trading can be a great money maker, and there are numerous traders who make 6 figures and more from them each year.

The best reasons to trade in penny stocks are the fact that they do not require a large initial investment, meaning that they are an affordable investment for many. Penny stocks are cheap. For example if you were to buy 1000 shares in a company with shares at 10 cents, you would only require an investment of $100, whereas if the shares cost $5 you would require an investment of $5000. Penny stocks also have the potential of huge gains, and have been known to rise as much as 1000% daily. Therefore your $100 investment can be worth $1000. This is very unlikely to happen to other stocks from large cap businesses.

This page will provide tips for beginners to trade, invest and make money from penny stocks. If you stay safe while trading you can make good money from penny stock trading.

Penny Stock Trading Tips

How to get started trading Penny Stocks

  1. You need a broker to execute your trades and there are a few different types of brokers. You can use a telephone broker whereby you phone him/her everytime you want to buy or sell a stock. You can also use an online broker through a trading company or through a bank. I use my online banking to trade penny stocks. I find this is the most effective way to trade penny stocks and make money from them, as it is much quicker than phoning your broker and is normally cheaper. Trading penny stocks with a cheap fee means more profit for you.
  2. You need an initial investment, one which you can afford to lose. Penny stock trading is risky so you need to cough up some cash that is not needed for bills or other necessities. I use my online earnings to invest as they are additional earnings for me. With penny stocks you only need a small investment, so $500 is ample to get you started.
  3. You need a live streaming share price service to see live price movements in your penny shares. This will help you sell on the peak and buy when the share price is low. It is very important you subscribe to such a service as you do not want to miss out on the highs and lows of penny stock price. This is the different between making a profit or a loss.
  4. You need to learn about technical analysis and how to read charts. This can help you figure out when the penny stock price will rise or fall. However if you are buying or selling based on rumor technical charting analysis may not be needed.
  5. Normally you do not hold penny stocks long term; they are risky so best to try and make a profit and sell as soon as possible. That being said some penny stocks can go on to become large companies but it can be hard to pin point the stocks that will be this successful.


Where to get penny stock tips to help you make money trading

You need to become friends with some penny stock investors on Twitter, join forums, discussion boards and sign up for penny stock tip alerts. Twitter is full of penny stock tips, which will send a tweet as soon as they have a hot penny share tip. In order to make money investing in penny stocks you need to act very quickly before the stock peaks in price. You also need to sell very quickly whenever the price moves downwards drastically. I would also say that it is important to do your own research on any penny stocks and be confident with what you are investing in. If you do not think the penny stock is going to perform well or you are not happy with it, then do not part with your money.

Finally you need to keep a trading diary to document both your successes and failures. This can help you with future trading and help increase the money you make from penny stocks.

Penny Stock Trading Explained

Are you going to try and invest in penny stocks

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