- Personal Finance
Online Penny Stock Trading: A List of Vital Penny Stock Trading Tips
Online penny stock trading pertains to common stocks or shares that trade for less than 5 dollars per share and are traded through over-the-counter quotation services like the Pink OTC Market (informally referred to as the Pink Sheets) or the OTCBB (Over-the-Counter Bulleting Board). Because the value per share is so low and because these stocks typically feature low liquidity you may find it more difficult to obtain verifiable legal and financial data on the best penny stocks available. Stock labels like small caps, microcap stock or nano caps often refer to penny stocks.
In this hub I will provide you with some core techniques to which you must adhere as you begin your journey towards penny stock fortunes through online penny stock trading. But don’t kid yourself; this is a journey with risks and losses at every turn.
Penny stocks often trade for less than one dollar per share, which can make it a volatile and risky proposition. The disadvantages and advantages to penny stock trading are both huge. On one hand, there is a significant risk of huge loss due to unexpected market fluctuations and on the other hand you can make massive profits in a minimal time period. Despite all the hype to lure wet-behind-the-ears beginners, trading penny stock is really better suited for market savvy professionals. When you begin your online stock trading career, I suggest sticking to blue chip stocks and working with a full service stock broker to help you learn the ropes before you delve into the world of penny stock trading.
Vital Penny Stock Trading Tips
- Go for a stock that is distributed among a large volume of shareholders. It is important to consider the structure of the share and the distribution of a specific stock. You should stay away from a stock that has a lot of shares held in just one offshore account. If there are millions of shares accounting for less than a penny in just one offshore account, you may know that while investing, there will be heavy selling. When the price of the stock rises, there will not buyers and the share will become redundant.
- Look at the long-term history of the stock’s performance and evaluate the corporate integrity of the stock’s company: If the company has a poor performance in the stock market over the past three to five years, or the history of the company is peppered with splits and mergers, there is an element of doubt about how stable it will be in the future. You should go for a company that has been stable for some period of time.
- Check your risk appetite: Before investing in penny stocks, take a note of how much money you can afford to spend and risk losing. As these are volatile investments, you need to find out a certain sum, the loss of which may not harm you financially. Go for high-risk investments only if you have the stomach to bear the loss. Seriously people, keep it safe.
- Check the legitimacy of the company: Call up and check if there is such an entity. Find other business listings and contacts of the company. If what you find does not satisfy you completely, drop the idea of investing in the company, even if a friend asks you to go for it and especially if some “newsletter” tells you to do it.
- Broker fees: If you hire a broker for buying and selling shares, find out if you have enough money in your account to cover both the cost of the share and the fees of the broker. Keep in mind that penny stocks are often traded in high volume, so just because you’re trading stock which sells for a tiny amount per share doesn’t mean the available transactions will be small.
- Study the “Pink Sheets” website well. Find out if shares are being bought or sold according to a particular trend and then make your own decision. Usually, when you deal with penny stocks, you should trade shares in large amounts, like multiples of thousand dollars or you may have to pay extra fees to your broker by way of commission. But remember, when someone asks where to buy penny stocks, they're looking for the Pink Sheets.
- Let your broker know whether you wish to go for a limit order or a market order. A limit order is one in which you have to state what is known as a ‘limiting price’ that should be reached before an order can be executed. The market order is when you are ready to pay whatever the market price is for the share you wish to buy. Experts say that making use of limit orders is recommended because there is more control and you can withstand price volatility. Again, seriously folks: use limit orders for penny stocks. It is not an unlikely scenario to put in your order with the price at one point and then get slammed with a way higher price by the time the order can be executed. Penny stock trading can be that volatile.
- You should also consider the period of the order to make a sound trading decision. Check if the order rests for one trading day or if you can hold it till a certain specified date.
Trading Penny Stocks Online
The evolution of online penny stock trading has made it even more convenient for investors to trade with ease. Thanks to the immense volume of information, tips and tricks of penny stock trading online, an investor can make sound decisions… if they’re willing to put in the effort. Never, ever simply take the word of a single source without exercising your own due diligence. You can also utilize the services of online brokers who can manage your account for a nominal fee.
But always exercise poise, reason and discipline when online penny stock trading.
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