About Penny Stock Trading
When you trade penny stocks online, it can be a very tricky process. First you have to find the right company. Are they overpriced? Will I end up losing more than I could gain? How do I know if I will make a profit off of them? The answer is you don’t, no one does. That’s the point of trading stocks, even penny stocks, there is always a risk factor and you have to be willing to risk it.
Learning to trade penny stocks is easier than you think, so don’t stress. Do your research and gain as much knowledge as possible before you invest. Make sure that you have a vast understanding and are comfortable with putting your money into certain companies and this should help minimize your risk.
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Tips to be Successful
Trading penny stocks online comes with both its perks and its downfalls. You need to know some tips and tricks that will help you along the way and make you more proficient in learning how to trade penny stocks online.
Start with keeping a journal; write down every move you make with a company. Make comprehensive so you don’t forget anything important you may need in the future. Track what positons you have taken and the results thus far. Mark down what bad moves you have made so that you don’t make the same mistake twice. Make sure you also keep track of any losses or profits you might have made.
The Risk Factor
When it comes to being able to trade penny stocks online what you can earn can be pretty impressive, but keep in mind that you may lose money in the process. The SEC (The Securities and Exchange Commission) which over sees the stock exchange considers anything under the value of $5 to be penny stocks, so no, penny stocks are not quite just penny’s.
The value of penny stocks are a little higher then a cents value, you should therefore adjust your profit expectations. Know that not only is it possible for your stocks to jump from $1 to anything higher, that they may also fall at a similar rate. If you want to be smart with your trades, invest small. Get in while the numbers are right, do your research and keep track of the trade, then jump out when the time is right. Knowing when the time is right will come with experience.
Starting small will give you peace of mind and prevent you from biting off more than you can chew. Also ALWAYS remember there is a risk factor, without risk, there would be no reward.
Lookout for Scam Companies
Never listen to penny stock promoters. Their job is to tell you this whole big story on how these companies will get big and earn you money in the short term. Some of it may be accurate, but most of it will be fabricated information used to manipulate you into buying shares in companies.
The big truth is that most penny stock companies are trading as such because of their volatile financial history and unpredictable financial future. Don’t freak out though, you can still make a decent profit from them, but do your research on the company first.
There are three major factors to look at when it comes to trading penny stocks online. First, you want to look into the company's underlying business. Look at the fundamentals. Stable growth, even on a small scale, is a good sign. Don’t fall for those fake or “shell” companies. These are companies which are lying dormant, lacking proper management and regular business operations. These shell companies are often picked up by fraudsters who buy large amounts of stock cheap, then spread wonderful rumors about the business to inflate the price. They then sell their large quantity of shares, causing the price to fall rapidly.
Next, look at the financial statements of the company. Do they have good quality financials? Make sure they are properly taking care of their financials because when you buy shares you are buying a portion of a real business. Who is their auditing firm? Do they use a well-known, reliable firm? You want them to have the best of the best and make sure they are properly managing their financials before you invest in the business.
After you look at the underlying business and made sure they have their financials in order, look at the foot notes. Read all the fine print and make sure you know every little detail about the company. Smaller companies can and are prone to related-party transactions and non-GAAP accounting oddities which can harm you and your stocks. Miss the footnotes and you might miss the chance to make a good profit or avoid substantial losses.
The below video helps explain the basics of fundamental analysis:
Purchasing Your Penny Stocks
When it comes to purchasing your penny stocks, you can still purchase them through any normal stockbroker just as you would with regular stocks. However, penny stocks don’t need to be listed on a major exchange.
With penny stocks you can use services like OTCBB (Over-the-Counter-Bulletin-Board). OTCBB is a quotation, which means that it has listing requirements and makes it more realistic and reliable. Companies on Pink Sheets aren’t listed with the SEC and they don’t have any listing requirements. Pink Sheets are a published quotation. Typically, companies will only list on Pink Sheets if they are too small to be listed or they do not wish to publically disclose information about the company.
Penny stock trading online can be risky, but with the right research, the right platform and the right knowledge, you can make some solid profits. According to the SEC, “Penny stocks may trade infrequently, which means that it may be difficult to sell penny stock shares once you have them. Because it may be difficult to find quotations for certain penny stocks, it may be impossible to accurately price.”
The penny stock trading game is based off of trial and error, so don’t give up. Do your research, look out for scams and find out which companies are worth your time and money.