Beginner's Guide To Penny Stock Investing
Have you heard about Penny stock investing? Do you know what it's all about? Well, Penny stock is the stock that trades at a relatively low price and has a market capitalization that is usually outside the major market exchanges.
Penny stocks are generally considered to be highly speculative and of high risk due to their lack of liquidity, large bid ask spread, limited following, small capitalization and disclosure. They are often traded above the counter with the OTCBB (over the counter bulletin board) and pink sheets. Typically, penny stock can be considered as a small company having highly illiquid and speculative shares. The company is also subjected to the limited listing requirements with fewer filing and regulatory standards.
Investing in the penny stocks provides traders with the opportunity to increase their profits dramatically, however, it equally provides the opportunity to lose your capital. In order for penny stock investing to be beneficial for you, it is necessary for you to take a close look at the company before investing, rather than investing just because the rate of the IPO is at minimum cost.
You should keep in mind that the company you are investing in must be realistic. Before investing, look out for the shares that have been consistently traded. If a certain company sells 1 million shares in a day and is left out of the trading for rest of the week, the daily average becomes 200, 000 shares per day.
This does not give you a consistent rate of return. In order to get an acceptable rate of return it is necessary for you to have consistency in the volume of shares you invest in. You should first look out at the liquidity because if there is no volume, you'll end up with dead money. This is where you have to sell your shares at the bid, which will provide more selling pressure, resulting in lower price.
It is also very necessary for you to check whether your company knows to make profit or not. If it is has been proven that the company knows how to earn profit, then the company can invest this money back into the company itself in order to grow their business. This will increase the shareholder value.
Penny stocks are considered to be volatile. They quickly move up and down. If the stock is moving up and makes it possible for you to look at the profits, then you should immediately lock in the profits rather than waiting for more. Basically, good penny stocks can be found with the help of mailing lists. There are many newsletters that are available which help people in pumping and dumping. Subscribers buy these mailing lists, while the insiders sell them.
Penny stock investing can be beneficial for you, but it is suggested not to invest more than 20% of your overall investment portfolio. Make investments to earn money and reserve capital to diversify into other stock strategies. If you are investing all of your capital into one form of investment, you are exposing yourself to massive losses if that particular investment fails. Never put all your eggs in one basket and put investment diversification high on your priority list.