Any share that is traded at less than $5 can be referred to as a penny stock. If you wants gains from the stock market but don’t have a lot of capital, you should consider trading with small and relatively new companies with less liquidity. The best way to increase your chances of making substantial profits is to find the best penny stocks.
Penny Stocks Pros and Cons
The main advantage of penny stock trading is that investors do not need to have a large amount of startup capital. These shares are available at affordable prices but have the potential of increasing in value by 100% or more within a few days.
On the downside, penny stocks are attached to small companies that you’ve probably never heard of. This makes them highly volatile, meaning that your chances of losing your money are just as high as your chances of making a fortune overnight. In order to increase your chances of a big payday, you need to know some tips and tricks for avoiding “pump and dump” scams.
How to Avoid Penny Stock Scams
In any market that offers a chance of making big money fast, you can expect to find both genuine people and unscrupulous ones. Generally, stock markets are easy targets for manipulation, although the waters are murkier when trading in penny stocks.
To avoid becoming one of those investors who have lost thousands of dollars in scams, flee from pump and dump schemes. In this type of fraud, promoters use enticing marketing gimmicks to spread fake news and generate excitement that in return lures unknowing investors. As soon as enough money changes hands, the value of these stocks depreciates.
You have to research companies in detail to reduce the risk of becoming a scam victim. Consider the volatility of their stock price to determine whether they are worth your investment. You should also be sure to listen to the buzz on the streets and steer clear from penny stocks that others think are fishy.
Where to Buy Penny Stocks
The first time you buy penny stocks, it’s better to do so through a broker. Finding the right penny stockbroker is a critical part of ensuring that you make a smart investment. To get it right, avoid brokers with high fees pinned on unnecessary charges.
Two of the most credible brokers are Charles Schwab and E*Trade. Charles Schwab offers reasonable penny stock rates, an opportunity to expand your portfolio, and a satisfactory range of educational resources. E*Trade, on the other hand, is an excellent broker for active traders. Other fairly good brokers you could consider include Ally Invest, Merrill Edge, Lightspeed, TD Ameritrade, Robinhood, Interactive Brokers, and OptionsXpress
The decision of whether or not to invest in penny stocks is a very personal one. You have to weigh the pros and cons of such investments to figure out whether they’ll benefit you. But it’s a fact that many people are investing pennies and reaping fortunes through penny stock trading. The most important thing is to find the best stocks.