This post may contain affiliate links, which means we may earn a commission if you make a purchase. As an Amazon Associate we earn from qualifying purchases. Thank you for your support!
Anyone who’s done some time researching various stock market trading strategies, has at some point heard about penny stocksand asked the famous question: “How Do I Invest in Penny Stocks?” –
Today we’ll share how to invest in penny stocks as well asafew important tips to help you research and choose which penny stocks are right for you to invest in, because you are going to need to very carefully do your homework before risking any money by trading in the market.
What Are Penny Stocks?
Penny stocks are stocks that trade at a relatively low price. These stocks are sometimes very speculative in nature, because there is no guarantee that these companies are ever going to get out of the price trading range that they are in. However, there is huge upside: your percentage gain on these stocks can be exponential.
Contrary to the title or what penny stocks are called, they do not necessarilyalways cost pennies to buy. While there are stocks that can be bought for pennies, the penny stocks that are going to be better for investors are usually going to fall in the cost range between $1 – $10 a share.
How to MinimizeYour Risks Trading Penny Stocks
While penny stock trading can be risky all on its own {and as we always say you do assume risk with any type of investment} – there are some things you can do to minimize those risks and maximize your gains.
Penny stocks that are under $1 a share are extremely risky. The general rule of thumb is if you want to invest in penny stocks is to make sure they are on NASDAQ.
There are stocks that are sold “OTC” which means “over the counter” – sometimes you will also see the words “pink sheet stocks” floating around.
What these terms mean is that they are not being traded on NASDAQ, which means for you as a beginner penny stock investor that your risk is extremely high because NASDAQ carries more reputable stocks.
Even these penny stocks on NASDAQ can be highly risky – so while we don’t want to scare you away from penny stock trading, it’s important to remember your risks. NASDAQ penny stocks are plenty risky enough on their own so unless you really want a LOT of high risk, in general you will want to stay away from the OTC stock exchange.
Here’s How to Start Investing In Penny Stocks Online as a Beginner:
Step 1: Find a good online brokerand open a trading account.
It’s important to know when choosing your online broker for investing in penny stocks that you are aware of the Day Trade Pattern Rules because this can dramatically affect your trading capabilities for how you can invest in penny stocks online.
Step 2: Research Penny Stocks You Want to Buy
Once you have your penny stock broker and money in your account, you are ready to start researching the best penny stocks for you to buyas a penny stock beginner.
The most important factor in determining which penny stocks to buy is volume. Volume is the amount of people buying and selling and trading. Now, if nobody is buying and selling the stock, it will have a very low volume and most likely you will just be spinning your wheels and wasting time.
A high volume penny stock has many people trading it, and there is a reason for that. These reasons might include breaking news, a new product launch, government approval, press releases, and so on.
Here’s how identify a high volume stock:
It has at least half a million people trading it each and every day. While “half a million” is not your absolute amount, it’s a good rule of thumb and benchmark to start with – you of course need to develop your own penny stock trading strategy formula that makes the most sense for you and your financial needs.
The price of the stock ranges between $1 and $10 {give or take} – As we mentioned earlier, penny stocks can cost more than pennies contrary to their name. Anything under $10 generally speaking falls into the penny stock category.
Here are the types of penny stocks we like the most:
Pharmaceutical Penny Stocks – Also known as Biotech penny stocks, these tend to be a little more stable and yet at the same time have more explosive potential to become a rising penny stock.
Here’s an example of why these pharmaceutical biotech penny stocks are generally good picks for your trading strategy:
Imagine that “Company XYZ” is in the research and development phase for the cure for some terrible disease…at the beginning their stock price is going to be relatively low during their researching and testing and government approval phases.
As soon as their product comes out and achieves Phase 3 approval for their medication or product, it’s going to explode.
However, the biotech industry is notthe onlyoneto research. There are many other industries out there that have just an equal amount of potential.
One of the hottest industries recently was/is the solar industry – so you will want to make sure you are always on top of the latest trends so you can have an idea of what types of products and services have the most potential for growth and hopefully are worth investing in while they are still relatively low coston the stock market.
Also Important: BeSure You Research the Company!
Not all companies are created equal, and it’s important to know as much about the company as you can before investing in it. You will really want to research company management, their financial reports, and do as much as you can to learn about the company and make sure that it’s the right one for you.
Now that we’ve gotten some tips for how to identify the high volume stocks and how to choose the industries that you think are going to be hot, you are ready to buy and trade penny stocks online.
To Recap, here’s what you really need to know:
- Stocks should be on NASDAQ
- Stock prices should be between $1 – $10
- Research the Industry Growth/Trends
- Research Company Profile Management & Financial Information
Hopefully this will give you agood understanding ofhow to invest in penny stocks. Do you have any questions about penny stock investing or other tips for how to invest in penny stocks for beginners you would like to share? Comments and questions are always welcome below!
