Penny stocks have undeniable perks that are often enticing to new investors. Even so, experienced traders who have a higher risk tolerance will, from time to time, turn to these inexpensive shares to make quick bucks. Any company share being sold at $5 or less can be termed as a penny stock. There are several sure tips for choosing the best penny stocks.
Penny Stocks Benefits and Risks
If you want to dive into the penny stock markets, it is best to understand the benefits and risks you face. Penny stocks, as the name implies, are shares that go for pennies. This allows investors with limited finances to buy into companies and sell their shares in the future for substantial profits.
The penny stock markets are highly unstable. This increases the chances of making either profits or losses. Fortunately, buying the best stocks reduces the investment risk involved. Take the time to study different companies and bet on those with increased chances of thriving and consequently growing the value of your shares.
Tips for Finding Worthy Penny Stocks
If you want to find undervalued penny stocks that trade between $1 to $5 per share, you can go to Pink Sheets and over-the-counter bulletin board. Pink Sheets are quotation publishers, and over-the-counter bulletin board, which is more legitimate, has minimum requirements that penny stock companies must meet beforehand. Because Pink Sheets is not recognized by the SEC and has no listing requirements, trading on the platform poses more significant risks.
Once you have chosen where to trade, the next thing you should do is find an ideal stock to trade. Using stock screening tools can help you trim down your options from an entire trading universe. You can further trim down your choices by sieving out stocks that match your strategy as well as your levels of risk tolerance.
Choosing a Broker
Working with a broker helps to eliminate some of the risks involved in the stock trading business. Brokers provide the infrastructure needed and can impact the behavior, trading patterns, and preferences of investors.
A factor to take into consideration when searching for penny stockbrokers is their free structures. Avoid those that charge per batch of shares and instead work with brokers who charge a flat rate for each trade, irrespective of the number of stocks trades. Some of the best stockbrokers include Choice Trade, Charles Schwab Corp, Interactive Brokers, Scot trade, and TD Ameritrade.
When choosing a broker, you should be aware that most of them run promotions and encourage new investors to open accounts at discounted rates. While some of these promotions are genuine, you cannot afford to ignore any red flags on the fine print. It is also crucial to know about the charges beforehand.
The process of getting started on trading penny stocks is easy. Once you understand the benefits and risks involved, you are ready to get on track. All you need is a reliable broker and, from this point, you can fund an account and settle for an ideal trading candidate. When done right, penny stock trading is lucrative, exciting, and worth it.