Trading Penny Stocks

Trading Penny Stocks
By Bai Mike

Penny stocks or micro-lode stocks, are stocks with trading values below $5.00 a share and with market caps below $200 million. These stocks are generally issued by small companies, start up or growth companies, or companies with liquidity, capitalization, debt, equity, or sales and growth challenges. Since these stocks are not as closely regulated by the Security and Exchange Commission (SEC) as other, major stocks, they tend to be more volatile and a riskier investment than other, more traditional stocks.

Once you have decided that these smaller, riskier stock transactions are right for you, you may wonder how you can trade it, since they are generally not traded on the major exchanges. With an increase in online brokerage firms and websites dedicated to these stocks, trading these micro lode stocks has never been easier.

First, determine what your financial goals and objectives are. Do you have some “play” money available for big risks, or are you taking your seed money from more traditional stocks, bonds, mutual funds and cash assets? Invest within your means and fully realize that it can be a risky investment.

Do independent and unbiased research on the company you want to invest in. These stocks are among the least regulated and most manipulated stocks being traded. Take some time and invest some energy into understanding the fundamental business model and basic financial information of the company.

Use various online resources and websites to get advice about these stocks. Many successful long term penny stock investors have hard and fast rules about which stocks they will buy and which stocks they won’t. Many times, this criteria is based on revenue, the type or promotion a stock is given by various sources. Use the online chat rooms and discussion forums to ask seasoned investors about their personal red flags.

Once you have identified which stocks you are interested in trading, open up an online brokerage account. Be sure to take fees and other incidentals into consideration when choosing your platform. These fees can add up quickly and take a big bite out of your profits. Set up specific parameters and automated orders so you can sell the stock if and when it reaches your high or your low. Without the help of a broker, the individual stock investor will be responsible for monitoring all activity.

Trading these stocks online is a very similar process to trading more traditional stocks online. You have the same tools available to you, although the market may be more volatile and riskier than other stock platforms. Once you have invested in your stocks, pay close attention and monitor activity. Since you have purchased at a greater volume, you are vulnerable to huge losses if the stock rapidly loses values. Of course, you are on target for big profits and gains if the stock behaves the way you have predicted. Like any stock portfolio, diversity is the key to successful investing and trading. Keep your options open, and you’ll have more success than failure.

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