Friday, January 11, 2013

How to Profit From Trading in the Penny Stock Market

What are Penny Stocks?

Blue chips are those stocks that have a very high unit price. In contrast, penny stocks are in the opposite side of the spectrum.

Penny stocks have relatively low value or price per unit, as they are owned by companies who are either new to the stock market exchange or those that are start-ups.

Is it safe to invest in penny stock companies?

Well, as the popular saying goes, "No pain, no gain." If you don't risk more, you won't profit enough. So does this mean that you won't lose a lot in trading pennies and therefore you won't have good earnings out of the penny stock market?

Another consideration to ponder on is "Is it safe to invest in the penny stock market?"

Actually, based on the answers I have gathered from online expert, the answer is no.

Penny stocks have a high speculative value, since there are only a limited number of ways to obtain details regarding the penny stocks. Unlike blue chip companies that are already established, penny-stock companies don't have that ready information to showcase to traders. This may entail that their revenues add up to the mediocre scale, and their branding is not yet known entirely to the public market scene.

Traders can only play the guessing game when buying and selling penny stocks. The price changes are only dependent on the curve of the demands and supply of stocks in the stock market and not on trending charts posted by analysts and experts.

In this article, we will discuss how to profit from trading in the penny stock market, despite this being the case.

Trading Principles Incorporated in the Penny Stock Market

1. Trade in low volumes.

Since you are unsure of what's to come in the penny stock market, the safest move you can practice is to trade in low volumes. Aside from lowering your losses, you also get to pay lower commission costs for brokers.

Since penny stocks don't get traded on major stock exchanges, brokers don't get as much as trading middle caps or blue chips. To compensate for this commission, they demand higher payments every time you make a buy or sell transaction.

2. Get information from penny stock company insiders.

If you are to trade your money on the penny stock market, at least you have to know someone who works for the companies you will choose. Since these companies had the gut to enter the stock market, they must have invaluable reasons and feeling that they will perform well in the next quarters. You just have to mine and know the details of their strategies to be more decided in your purchase of their stocks.

3. Don't get addictive with the big profits you can gain from penny stock market.

As said, there is no certainty in trading in the penny stock market. This is not to say though that there is certainy in trading in the general stock market. But you can be more guaranteed that for instance, Apple stocks are down this quarter, they will rise up once again in the next quarter or perhaps in the year after. Apple is a very establshed company, and they have a continuous supply of innovative products and offerings.

When you get big wins such as 200% (which is entirely possible) out of trading in the penny stock market, you are less assured. That company can just be bought by a larger firm before you bat an eyelash. Don't be greedy; when you achieve about 80% of profit, stop there and sell your penny stocks.

End Notes

Low prices of stocks in the market are like shining, shimmering and splendid to your eyes. But they don't hold much profitable value. What you'd expect to do next is wait until you reap your dividends from penny stocks for a long time without assurance. If you have been investing in the stock market for a while now and you're excited to make big money with BIG risks, then include MANY penny stocks in your portfolio.