Many new investors turn to penny stocks when they’re starting out with only a few dollars to their name. It makes sense to invest small amounts of money in several different companies.
Even if the price rises a fraction of a dollar, your return could be a solid one. On the other hand, a penny stock could fall in price and make a slow recovery.
Trading penny stocks from day to day can be a fun pastime for some. These low price stocks change the game. Here are a few tips on how to get into penny stocks and turn your pennies into dollars.
Qualifying as a Penny Stock
First, you’ll need to understand which stocks qualify as “penny stocks”. As the name implies, these are stock shares with prices below $5.00. Many large multi-billion dollar companies once started out as penny stocks.
You can see how the potential for attractive returns is tangible.
You can find them on some of the major stock exchanges, like the New York Stock Exchange or the American Stock Exchange. It’s not hard to find a good penny stocks list.
If you wish to play a riskier game with your stocks, you can find some on various gray markets. Gray markets are less regulated than official markets, making these stocks riskier investments.
Opening an Account
To trade, you’ll need to have an account with a trading platform. There are many different traditional and new options you can choose from.
If you choose to trade through a stockbroker, you’ll face brokerage fees. If the fees are high, this could encroach on your final returns. Try to find a broker with a low flat rate per trade rather than per share.
You can choose to trade on an online trading platform instead. Fees may vary from platform to platform, but you can take greater control of your investments.
Some platforms of different analytical tools to help you better understand your investments.
Understanding the Risk
Any investment you make over the course of your life will come with inherent risks. While penny stocks are cheap, they come with some serious drawbacks of which you need to be aware of.
These stocks often lack liquidity. This is because there is little following in the larger investment community.
When you trade, you need to wait for buyers and sellers to become available. It’s easy to get caught waiting for an opportunity to enter or exit a market share.
Additionally, some penny stock traders have grown quite good at manipulating prices.
How to Get Into Penny Stocks
If you’re new to investing, you may consider the idea of trading. While these stocks can offer attractive returns, they come with some risk. If you think you can embrace the risk, penny stocks may be for you.
This guide on how to get into penny stocks should give you a place to start on your penny stock venture. To learn more about trading and finances, visit our Finance section.