How To Invest In Penny Stocks?

How To Invest In Penny Stocks?

Many people have not even heard of penny stocks, however if you find a hot penny stock then you have a chance to make a lot of money. Firstly, what is a penny stock? Penny stocks are exactly what they say they are, they are company shares that trade for less than a couple of dollars i.e. pennies.

There are millions of people across the globe that invest in the stock market. Many do not even know that they are investing in shares, however if you have investments or a pension the chances are that your money is invested in shares.

Why would you want to invest in penny shares? Well, there is the opportunity to make a fantastic return on your initial investment. If you buy a share for 10 pennies and the share increases to 15p then your initial investment has grown by 50%. Now in normal share trading it is highly unlikely to make quick profits and generate these types of returns, certainly not quickly. With penny shares, a small movement in price can generate a massive percentage increase in your investment. If you buy a share for 10p and it even trades at just 11p you have increased your investment by ten percent. Try doing that on normal stocks and shares.

There are a number of risks that you need to be aware of if you are going trade in penny stocks.

1/ Volatility

As small movements in share prices mean massive percentage changes in investment returns you need to be aware that not only are there big gains to be made but there are opportunities to lose your investment should the stock reduce in value.

2/ Risk

Penny stocks trade as penny stocks due to the risky nature of the company. There is always the risk that the company will go bankrupt and you will lose your investment.

3/ Research

With normal stocks it is easy to research the company background, their finances and their opportunities for growth. With penny stocks it is much more difficult to do research on the company which makes your investment decision more difficult to take.

4/ Trading

People who trade in penny shares, due to their volatility, tend to invest small amounts of money in each share. Finding a broker who will buy and sell the stock for you may be difficult and you need to be aware of any charges they will charge you on trading the stock. A high cost to buy and sell may remove a good chink of your investment capital. Your best option is to find an on-line trading company which gives no advice but has low costs to buy and sell stocks.

As long as you understand the risks involved in trading penny stocks there are opportunities to generate great returns on small investments. There are a number of training courses available to help the investor who is new to the market. As with any training, check out the background of the trainer and find out if they have been successful in the market or if their training is based upon the knowledge of a successful penny stock investor. Do it right and you have the ability to turn small investments into excellent returns in a short timescale, do it wrong and you have the opportunity to lose all of your investment. When starting out, put aside your initial investment and go and play the market.