Dec 9, 2011

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Making Money With Penny Stocks- What You Need To Know

making money with penny stocksMaking money with penny stocks is both rewarding and risky, as an investor you should first understand the basics. The definition of penny stocks, as per the Security and Exchange Commission (SEC), is any stock that is under $5. This definition is not standard as some view them as stocks below $3. Generally these stocks are not traded on exchanges such as (NYSE and NASDAQ). They can be termed as speculative securities that are operated over- the-counter through listing services like pink sheets and OTCBB. They can also be referred to as small caps, micro stocks or even nano caps.

Stakes Involved When Making Money With Penny Stocks

Stocks with a low price are usually more volatile. For instance a 1 cent stock can yield gains of about 100-300% in one day. Higher priced stocks can be compared to the normal NYSE stocks which trade slowly and steadily. It is still possible to make a gain of 20 to 50% daily with less volatile stocks. Normally, these stocks are operated in small volumes; however, making money with penny stocks is possible since they can rapidly shoot if they are singled out by investor experts.

One can make huge gains from these stocks but they are also subject to fraud and price manipulation. In the month of November the Exchange Commission had to suspend 17 penny stocks due to lack of sufficient information and yet they were hyped up in various bogs and websites. This is the flip side when it comes to this type of stocks.

Strategy For Making Money With Penny Stocks

Making money with penny stocks is easy if you have an entry and exit strategy. It is imperative that you carefully study the trading charts. It is advisable to buy stocks at their bid price. The selling point depends on an individual investor; one can sell at least 50 % of the penny stocks when the shares reach a 30% PPS spike.

Factors To Consider When Buying Penny Stocks
It is advisable for investors to seek information from credible sources as they are a lot of scams and “pump and Dump” information in various websites and even journals. This microcap fraud mainly entails price inflations that are often made through misleading statements. This is in a bid to lure investors to buy the stocks terming them as profitable.

As an investor, there are various factors you ought to consider before jumping onto this bandwagon. You must carefully analyze a company by looking into areas such as audited statements, stock structure, transparency, turnover and all financial records. Reputable firms should be listed on the SEC and this is an investors best bet on making money with penny stocks.

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