Feb 15, 2011

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Penny Stocks for Dummies

Understanding Penny Stocks

Most people define penny stocks as shares of stock that trade anywhere from a fraction of a penny in upward to $5.00. Keep in mind they are riskier than your average investments, but do have enormous reward potential. Through the years there have been plenty of penny stocks that have run from .50 cents to $10.00, as others have become worthless.

Before the days of teaching oneself by online education, penny stocks typically had a bad name due to the risk levels they carried along with the lack of information about the companies behind the scenes.

At the present time, many investors are quickly learning that penny stocks constitute majority of the smaller companies across the U.S. that offer tremendous opportunity and have yet to grow or be discovered.

Most surveys show that the general public like penny stocks mainly because it does not take a large cash outlay to get started while one can be involved by owning a portion of a sound company quite inexpensively. The pros of owning penny stocks are the capability to turn a rather small investment into a cool mint in a hurry while the cons can be the risk, volatility of the trading instrument and the lack of corporate transparency.

Are Penny Stocks Dummy?

Recently, penny stocks are increasing in popularity. Penny stocks generally make their mark referring to their price appreciation based on the potential emerging growth of the company. This is all dependent upon what niche sector or industry it may do business in as well as the supply/demand factors for their products. Especially those companies that are trading at deep discounts to the fundamental value will have the most upside potential over time as their business grows.

These penny stocks offer the greatest opportunity of turning the average Joe into a millionaire as his original investment transforms into a vast amount of riches and wealth!

Where do I start?

Getting started is quite easy. When trading any investment, all one needs is a brokerage account. Our recommendation being a discount broker, preferably Ameritrade or Etrade which will save plenty in commissions over time as opposed to a full service outfit. Your broker will take a small fee each time you place a trade to buy or sell a stock. Perhaps you want to capitalize early and often on making money from penny stocks, you then can take advantage of our online financial communications top rated newsletter. Since timing and pricing is everything in today’s’ markets, we’ll give you picks with a purpose only when it warrants your undivided attention at that moment in time.

Each and everyday there are plenty of penny stocks that make tremendous moves, but questions is, are you getting involved before the move is made? Many penny stocks do well over 100% in a single day! Have you ever said to yourself, if only I was in that play yesterday I would of made a small fortune.  Bottomline is this….The best time to get started in penny stocks is right now. Reason being, penny stocks allow the small time investor to make potentially huge gains. By opening an account with little money you can control a large number of shares and a little price action for great rewards.

Penny Stock Basics

The first golden rule in our book is learning to protect oneself by taking the time to research and doing the due diligence into companies you like, and get your ideas/plays from reputable sources. We always make sure to get involved with companies that have strong fundamentals and good financial positions, rather than just being based on a story.

Another rule of thumb is getting involved in companies that tend to have strong business plans and financial’s. Check to see if the company is growing fiscally year over year which usually offers great foresight on future share price. We also look for trends of improvement, by that we mean driven operational moves by management that tend to result in upward momentum of the stock price with the correct exposure.

The art of trading penny stocks require you to be more vigilant than when trading the more stable large caps. You must give more consideration to timing, pricing and the higher risk and volatility. In summary, remember once again there is no way around risk, Only smart ways through it!

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