Trading penny stocks can be a great way for new investors to learn about the stock market and learn to analyze economic variables without risking a lot of money – but it can be difficult to get started. After all, there are countless apps and trading houses, hundreds of stocks, and lots of new terminology to learn. But you don’t have to go it alone.
These four expert insights and strategies can help beginner investors master the art of trading penny stocks, even if they can’t insulate you against risk. Investing always comes with financial hazards, but these guidelines can give you the best chance at turning a profit.
Choose The Best Markets
Penny stocks are technically those that trade for under $5 – they don’t actually trade for pennies or nickels. With such low values, though, you’ll find some of these stocks on low-quality markets like the many small African markets. Stay away from these and look for penny stocks on quality exchanges like the NYSE. Though they may be slightly pricier, they’ll likely be more stable, and trading through a high-value exchange will teach you more about investment more generally.
Skip The Big Brokerage Programs
When you’re investing in stocks of any sort, you have two major choices: full-service brokerage firm or a discount firm. So which is best? If you’re going to be trading penny stocks, you only need a discount firm. For more expensive stocks, beginners should work with a full-service brokerage, because it’s important to have professional guidance until you learn the language and the norms of investing. With penny stocks, though, it rarely makes sense to pay for the added tools and advice provided by a full-service firm. Unless you’re absolutely floundering, it’s okay to take your chances with a discount brokerage; you don’t have a lot to lose.
Study Common Hazards
Despite the fact that penny stocks may seem like low-risk investments, they’re still vulnerable to manipulation and other nefarious ploys. For example, because they’re so inexpensive, penny stocks are common targets of pump-and-dump schemes. In a pump-and-dump, an individual or group buys a stock low and then plays it up through social media, newsletters, or investment message boards so that other people will purchase it. Then when the price has been inflated, these initial buyers sell off their shares at a large margin. It’s important for new penny stock investors to learn about these ploys and know how they work in order to avoid falling prey to price manipulation schemes.
Experiment And Innovate
Regardless of your long-term investment plans, as a beginner penny stocks investor, your best approach is one of curiosity and experimentation. That means you should start the process with a minimum investment and always take your losses quickly – don’t hold on to failing stocks. As for your winners, let them ride and keep doing your homework in an attempt to better understand why those stocks are thriving. That information can help you choose your next stocks.
Unlike big money stocks, penny stocks offer new investors a chance to experiment and try new things without risking a lot of money, and you can do this safely as long as you keep track of what you’re doing. Maintain a spreadsheet that records your investment – the stocks, purchase price, sales price, and other key information. Over time, you’ll gain greater insight into what works and where you’re turning a profit. With time and practice, you’ll be a penny stock master in no time.