Are you considering investing in penny stocks and wondering can you make money on penny stocks and keep your day job? You may be surprised by the answer.
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There are many players in the game of stock broking who frown upon penny stocks. While NASDAQ and Wall Street are the epitome of sophistication in the world of stock exchange, the penny stock is rougher around the edges. Because of its susceptibility to fraud and manipulation, people tend to avoid it altogether. Yet penny stocks have proven to be lucrative for many investors, and the reason why is careful and smart strategy.
So can you make money off of penny stocks ? Depending on how you invest, and how well you strategize, it’s possible to make money and some of the biggest returns on investment in the stock market!
What Are Penny Stocks and Why Are They So Risky?
A penny stock is a share in a small company that is valued at less than $5. These are companies with much fewer shares outstanding in comparison to headlining companies like Wells Fargo and Apple. Penny stock prices change drastically, and these types of markets are known as volatile markets. Since there are usually fewer buyers floating around smaller shares, the lack of liquidity can be difficult for sellers.
Penny stocks are not examined or regulated by major stock exchanges. In fact, penny stocks are traded in an OTC (Over-the-counter) market. OTC markets are home to small companies unable to meet the requirements for inclusion in the major stock exchanges. Brokers typically communicate via internet and phone when trading, and since most penny companies don’t meet the requirements to file and be protected under the SEC (Securities and Exchange Commission), they are very susceptible to fraud and manipulation.
Pump and Dump
Penny stocks function on schemes known as “pump-and-dump”. Pump-and-dumps are carried out by paid insiders or other investors who falsely hype up the worth of a share and consequently build up the volume of buyers in an attempt to increase the share worth. Many of these pump-and-dumpers are paid or are traders themselves, and they singlehandedly raise the worth of their shares by misleading others into believing exaggerated or falsified information and predictions about a share. Therefore, during inflation, when liquidity is increased, they can sell their shares for more than the original value, and leave profited.
So Can You Make Money Off of Penny Stocks?
Most notably, Timothy Sykes did. He transformed several thousands of bar mitzvah money into millions. Not only has he made his fortune as a penny stock trader, but also as a financial guru for aspiring penny stock traders. One of his followers, Tim Grittani, made a small investment into over a million dollars. While players like Sykes and Grittani are at the forefront of penny stocks, there are others like him who are transforming small investments into substantial and even lucrative livings.
Tim Sykes Harvard University Talk on Penny Stock Trading
While there is a lot of potential to lose, there is also a lot of potential to gain. Can you make money in penny stocks by playing into the pump-and-dumps without the safety blanket of the SEC? The answer is yes, you can learn how to make money with penny stocks… so long as you are willing to face risk, put in time and effort, and accept loss as willingly as chase gains.
Do Your Homework
Research is an absolute must in all stock trade. For penny stocks, research is even more essential because of the risks. Investing in penny stocks is investing in undervalued companies which don’t list themselves with major stock exchanges. Penny stock quotations are published on either “pink sheets” or on the OTC Bulletin Board (OTCBB), and both are not as verifiable or reliable as the reports made by the prominent stock exchanges.
“Pink sheet” (now known as OTC Markets Group) shares don't meet the requirements of the SEC and as a result, do not report to the SEC. Companies whose shares are recorded on “pink sheets” trade for low prices. Yet, companies have the potential to grow in worth, and even get recognized by major stock exchanges because buying “pink sheet” shares are extremely cheap and can hit big in the penny market.
OTC shares can be listed in the OTCBB publications because like “pink sheets”, they are not listed in the more prominent stock exchanges. In order to be considered an OTCBB share, a company must publish a quarterly report to the SEC and follow the Sarbane-Oxley Act of 2002, which ensures protection from corporate fraud and manipulation. Therefore, OTCBB is more reputable than the “pink sheets”, though less reliable due to being a part of the OTC market.
While both require a certain number of shares, there are more qualities which further distinguish OTCBB and the “pink sheets”. OTCBB shares are still on the fringes of wider recognition, but are not as stigmatized as “pink sheets” because they meet more standardized stock exchange requirements and are more monitored.
Issues with OTC Shares
When researching, you’ll want to find out how much money a company makes. This, again, can be difficult to verify with “pink sheet” shares, or sometimes OTCBB shares. Despite this, brokers still trade in OTC exchanges, particularly in penny stocks. So investments still grow and have potential for further growth.
How lucrative, or potentially lucrative, a company is will determine the value of your investment. It would be wise to research a company’s initiative, and whether or not they plan to get listed or re-listed on a major exchange. This will give you an idea of how serious a company is, and will help reveal how willing you are to invest.
What to Consider
Consider looking at a share’s current value and comparing its patterns to fellow companies. How important is it that you know who is behind the company? What is their marketing style? Can you get an idea of how voluminous the customer base is? Then ask yourself how important these factors are in determining where your investments go.
Can you make money on penny stocks by conducting thorough research and instilling your faith in a share alone? The answer is no, not on research and faith alone. If you’re still asking yourself, “How can I make money with penny stocks , too?”, you’re forgetting about the strategy of risk-taking in the penny stock world.
Overview of Making Money on Penny Stocks
Recognizing how penny stocks function is necessary before immersing yourself in them; however, whether you can make money on penny stocks will be dependent on the trade strategy you implement. Pump-and-dumpers tactically rack up their shares so they have more to gain when they perpetuate an upcoming surge of buyers. If you’ve been sent a hint via junk mail about a predicted outcome, or can recognize that prices are jumping, or that a shift in stock trade volume is increasing, you too can hop on the surge and prepare to sell your shares when the time is right and when volume is at its highest.
So Can I Quit My Day Job?
The answer to that will greatly depend on some factors. After you’ve considered how much you’re willing to invest, whether or not you can suffer some blows and still pay your bills, and ultimately how much you want to gain and how little you want to lose, you might be able to quit your day job and become a full-time penny trader. Making money off penny stocks takes loss and risk. If you want to become the next Timothy Sykes, you might be able to quit your day job and become the newest wolf in stock exchange. But since the nature of penny stocks is so risky, you may want to dabble in penny trading before you say “sayonara!” completely.
Penny stocks keep many brokers away and have created many disbelievers. Yet there are individuals who make a living out of this trade and have transformed thousands of dollars into millions. For those who have proven to be highly profitable in the penny stock market, their ability to profit depended on how well they mastered the risks and nuances of the trade.
Editor's Note: To learn more about how you can make money off of penny stocks, you may want to check out Jason Bond's Investment Programs. You'll get a lot of help in figuring out which low-priced stocks to invest while you're still honing your own trading skills. Click here to read more.