Basics of Investing in Penny Stocks

penny stocksPenny stocks are also known as one-cent stocks and are common shares for small companies that trade at low prices per share. Despite this name, any stock is considered a penny stock if its value is less than $5 or less per share. Companies behind penny stocks are in most cases unstable or the new entrants to the stock market, else they have a very low net worth. Many of these companies sell few products and services and normally do not publish their financials.

Penny stocks are characterized by a lot of volatility. Because of this volatility, they also serve an astounding opportunity to make money. Due to the fast-moving stock, you can take advantage of the day’s trading and make a lot of profits. Instead of buying stock in the morning when the market opens and selling in the evening when the market closes, you capitalize on buying in between the day and selling the stock after just a few hours. The volatility of penny stocks is very dangerous, and that is what creates all the business in investing in them.


Investing in Penny Stocks

There are a couple of ways to invest in the penny stock market. The most effective method is to buy stocks based entirely on the supposition that the value of the stock will rise, and then sell the shares once they reach a certain predetermined value. Additionally, you can short sell penny stocks and this means believing that the value of the penny stocks will decline. This allows you to borrow shares that you do not yet own, and then sell them when the price drops. Regardless of the manner, you invest in penny stocks, it can be very lucrative once you get your math right.

Unlike other types of stock, penny stocks are traded over the counter. This means a broker allows you to transact using the money on your accounts. If you want to trade in penny stocks, you can open an account specifically for this purpose, with as little as $500. You then decide what stocks to buy or sell in the short term.  To participate in this trade, you need to have a good understanding of charts and patterns to avoid making losses.

The benefits of participating in penny stocks can be numerous. However, you need to note that the penny stock market is very complex and if you are not careful, you may make a lot of losses.


How to Safely Invest in Stock Market

stockInvesting in the stock market is an excellent way to grow your wealth. When it comes to investing, the outcome is not always guaranteed. You could make money as well as losing it in the process. The basic rule of investing is investing long term. Investing in the stock market works, and with an investing strategy, you can make a lot of money in the long term. Investors are able to buy and sell shares in any public company at a given time. The goal is to buy shares in a company at its early stage and do so when the shares are undervalued.

A successful rule of achieving success in the stock market is when an investor buys a company and X dollars holds the shares in that company for an extended period of time until the value has gone up and sells at a profit. Here are some golden rules for investing in the stock market.


Invest long-term

Only invest money you won’t need for a long term. You could lose money or earn it, so chances of making a profit will be high if you invest with a long-term strategy in hand. You need to invest money you won’t need to touch for many years. Most people make mistakes of buying stocks and selling too early even when they have not made lots of profit.


Do not time your investments

People have a tendency of shunning away from the market when it is getting drubbed and come back only when it has recovered. However, when the market looks worst, that is where the biggest opportunities exist. When things start to be good, opportunities become slim. Do not get over excited about the market and make unreasonable decisions.


Invest in steps

stock marketYou need to invest periodically and not all at once. Rather than rushing to buy hundreds of shares at the time you are convinced the stock is going to take off, instead invest a portion of your money in the market and observe keenly what is happening. Do not invest all at once, but instead, diversify over time. Spread your investments out to cater for uncertainties that may be associated with a specific company.


Have an investment plan

Buy and hold is the best way to go about it. There are vital lessons we can learn from Warren Buffett. If you are not thinking about owning a stock for 10 years, then you should not think about owning it for a minute. Forever can even be a good holding period. Do not put all your money in one company, but always embrace diversification. If all your money lies on one company, you are exposed to a lot of risks.


Ignore the noise

When investing in the stock market, you should ignore the noise and all forms of speculation. Be guided by logic and not emotions. Avoid the temptations of checking your stock ticker on a daily or weekly basis. Markets usually go up and down every day and that should not be something to worry you. The more you trade, the more you are likely to underperform.