Penny Stocks Are No Different

Stocks have been known to provide great returns for investors for decades. The recent stock market crash certainly made for several buying opportunities across the stock market. While it is true that the risk of losing money is real, the potential profits are too much to ignore. Possibly the highest potential for reward comes from

Making money comes in all forms, and stock trading is one of the more exciting. Some tips for trading penny stocks can help you take a little of your hard earned money, and turn a huge profit from it.

One such tip is to do your homework. This is something that all investors need to do no matter what they are investing in. Penny stocks are no different. Penny stocks are shares of companies that have dropped in value to below one dollar per share. This fall to a low share price happens for numerous reasons. Fraud in a company, lack of profit and high debt are all common factors. This is why doing your homework is important. Knowing the reason for a company’s demise can help you spot their progress at making a turnaround. Reading about new technology they are developing, or new management they are hiring can really be teasers that the stock is soon to rise on positive news. Ultimately, earnings and acquisitions are the most common reasons for a stock’s price rebounding, and these actions are often foreseeable, but you must do your homework.

Another important tip to take into consideration is whom you purchase your shares from. Many online brokers charge fees for buying penny stocks under a dollar. Choosing a broker with low fees to begin with can offset some of this cost. With multiple financial institutions competing for your trading commissions, it can be easy to find a low price. Along the same lines, limiting the frequency in which you buy or sell more shares is important. The trading commissions charged by your broker of choice must be paid each time you buy or sell on the open market. Making large sums of trades can limit the hit your portfolio takes on such fees.

A final tip that can be of some help is limiting your losses on penny stocks. If you buy penny stocks worth a dollar and it drops to .75, it may seem like you only lost a quarter, not a big deal right? Wrong. This is a loss of a whopping 25%, and is the equivalent of a stock priced at $100 dropping $25 to $75 a share. It is very easy to lose focus on how fast you can lose money when trading penny stocks. Keeping in mind a price to get out of an investment is imperative.

Trading penny stock can provide great returns, that is understood. Just as important is know how to trade them, and these tips are just simple ways to protect your money. Do your homework, limit your trades and know when to get out of a bad trade. These tips will save and make you a lot of money.