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The Beginners Guide to Investing in Penny Stocks

You may have heard about penny stock trading but aren’t sure what penny stocks even are! Although investing in penny stocks may seem a bit scary and overwhelming, if you do solid research from legitimate sources as well as take advice from professional traders, penny stock trading can be lucrative.

What Are Penny Stocks?

Basically, penny stocks are shares of low-value companies that are normally traded in small denominations, usually $5 a share, although many are below $1 per share. These are often called microcap shares. Penny stocks are considered to be speculative investments. Most penny stocks are not listed on the major market exchanges because they do not meet the requirements of the Securities and Exchange Commission’s Penny Stock rules. Only companies that comply with these rules can be listed with Nasdaq’s Small Cap Index.

It is highly advisable to find a reliable discount stockbroker who complies with the Securities Exchange Act to help reduce the risk of investing in volatile stocks or fraudulent scams. When thinking about your investment options, look for companies that are credible and have a reputation for growth. Even if that company experienced a crash in the past, look to see if it was able to rebound to sustainable growth levels.

Know Your Risks

Trading in the stock market is a complex business and even more so when trading with penny stocks. However, when done properly, penny stocks can bring financial rewards. Because the penny stock market does pose potential risks, it is wise to arm yourself with the knowledge that comes from solid research from legitimate sources. Also, be careful of stocks that seem too good to be true, that are “red-hot”, or come from companies with poor reputations. In addition, follow the golden rule in investing — never invest more money than you can afford to lose.

Choose the Proper Penny Stocks to Invest In

When trying to figure out which penny stocks are good to invest in, find a reputable broker who offers low trading fees and has a good reputation. Do your own research on the companies in the market you plan on investing in, and make sure those companies can provide transparent financial information as well as demonstrate a solid business model.

When you find a niche that you understand or are passionate about, you may enjoy and understand the process of penny stock trading even more than just blindly investing. Also, follow industry trends and consider investing in those companies that appear to be moving in a direction of sustainable growth.

Finding the right penny stocks to trade in can be as simple as using a stock screener. You can input the financial and time frame criteria you are looking for, and the screener will show you results based on your search input. If you feel like you would like help navigating the waters of penny stock trading, you can look for a qualified trainer, coach, or mentor to guide you in the right direction.

By understanding what penny stocks are, truly understanding the risks involved, and by doing good solid research with the help of a professional trading coach, you can be on the way to turning a profit on your small initial investment.

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