If you have firmly decided that investing your money in the penny stock market is something you want to do, don’t rush into it quite yet.
Do you understand what penny stocks are? Do you know how the market works? If the answer to these kinds of questions is ‘no,’ then you should find the information in this article to be highly useful.
Here are the five things you need to know before trading penny stocks:
1 – The Price Is Volatile
Penny stocks aren’t just noted for their low price; they’re also noted for their volatility. Both of these traits together are exactly why many people are attracted to penny stocks in the first place, especially since higher volatility can possibly translate to a higher return on investment.
But the flip side of the coin is that the exact same thing can be said about losses. Don’t mistake volatile prices as equating to a greater reward. Rather, equate it to greater risk. Are you willing to make that risk? Only you can decide.
2 – Penny Stock Companies Are Small
Not only are the companies behind most penny stocks small, most of them are also new with a limited reputation and financial data only over the short term. This is one reason why the price is so much more volatile and risky. This shouldn’t discourage you from investing in penny stocks, but you need to be aware of the kind of market you are playing in.
3 – Liquidity Is Lower
Liquidity is lower in the penny stock market for one very simple reason: less people trade penny stocks in comparison to the stock market, and the reason less people trade in the penny stock market is because they rightfully view them as riskier.
The reason why low liquidity is a bad thing is because it can mean you’ll possibly have a more difficult time finding somebody who will buy your shares at your preferred price point.
4 – The Market Is Constantly Being Manipulated
The reason the penny stock market is constantly being manipulated is precisely because of the low liquidity. If a penny stock price rises rapidly without any breaking news concerning the company behind it, it’s clear that someone or a group of people are manipulating the price. Stick to investing in companies that have good news stories or a solid reputation behind them.
5 – You Can Still Make Money With Penny Stocks
Through it all, you can still make money with penny stocks. The market may be riskier in comparison to the traditional stock market, but thousands of other people make money with it, so why not you? Play your cards safe, stick to companies that have solid financial data and a good reputation, and be prepared to buy and sell within seconds.
Investing In Penny Stocks
The penny stock market is ripe with opportunity and you shouldn’t let your fears hold yourself back. Simultaneously, you need to be aware of what exactly penny stocks are and how the market works before you invest your money.