Penny stocks are one of the common instruments in the world; their popularity has been further accelerated by their inexpensiveness.
They are very cheap and that gives them the allure they have, because the investors with very small amounts of money can also get to be involved in this type of investment.
Penny Stocks: What You Need to Know?
Penny stocks can be described as lowly priced small cap stocks that are further described by the Securities Exchange Commission as any stock that is worth any amount under $5.
After understanding what a penny stock is it is important to know how these penny stocks are managed or regulated.
There are two types of regulations that penny stocks have; they are either Over The Counter Bulletin Board penny stock or they are Pink Sheets penny stocks.
The OTCBB listed stocks have an advantage over the Pink Sheet listed stocks, and the advantage is that the OTCBB socks can are regulated by the Securities Exchange Commission while the Pink Sheets have no regulatory body to oversee their operations.
Basically, any company that cannot make it through the listing requirements of the exchanges that are very stringent go for the next step which is the OTCBB which is more desirable given that they are regulated but for other companies they go for the lowest least legit listing the Pink Sheets.
Steps to Follow, When You Want to Buy Penny Stocks Online
If you are going to buy penny stocks online, you might as well be ready to get your hands dirty and conduct your own due diligence.
It is better to have measured before buying any penny stock because at the end of the day you are putting your money on the line, and that requires a lot of sound decision making from your side, and that can only be achieved acquiring proper information.
The good thing is we are in an age where information and resources are freely available thanks to the internet, so you can check on a stock in the Stock Patrol website and they are going to give you a massive amount of information on the stock you are looking up.
The next step is to double check the information, and this step is very important because you cannot trust one source just for your sake, you should also ask your broker to the company you want to invest in, and they will readily give you the information you want.
The next thing is to come to terms with the risks involved in buying penny stocks. You should have at least the right knowledge; the right skills because with all the assurances that the stock is sound without knowledge of the proper price to buy it at then all the prior work is totally useless.
Also on the risk you must be ready only to use money that you are willing to lose if the trade goes against you, and also having mental stop loss orders in place will save a great deal of agony.
After you have identified your risk now, you are ready to start thinking of the potential payoff of the penny stocks you have bought.
You should be fast to take your profits when it comes to penny stocks, the more you hold the penny stock, the more likely you are to be left holding the penny stock longer with no one to sell it to.
The faster you sell your stock in profit the more likely you are going to make money buying penny stocks.
Core Aspects to Consider, When You Want to Buy Penny Stocks
As a penny stock buyer, these aspects should be ingrained in your head before making any purchase. The underlying business of the company whose penny stock has been listed, the company should have a very sound business based operation that supports the company’s growth.
There are instances that the companies listed are shell companies and they have no underlying business, and this is one of the best companies that are used to run penny stock scams.
The scams are often run by penny stock promoters, they create a lot of attention on the stock and give tips on it continuously to ensure many unsuspecting people will get involved and buy the stock to pump it higher and when the stock gets to the scammers price the short sell it massively and most traders are caught holding worthless stocks that they cannot sell to anyone.
After you get through the underlying business, you check the company’s financials. The financials are one of the key pointers if the company is legit or not.
The first thing to check is if the company does file their returns on time if they do not know that is a major red flag. The other thing to check is their auditing firm and if the firm is regulated by the proper authorities.
The last thing to check on financials is if they have a good liquidity backing that equates to their company. After you have gone through this checklist successfully, you can now do your analysis on the penny stock you want to buy and make the proper decision.
There are also other aspects to check on that might save you the misery of losing your hard-earned money. You should also know how the companies do their reporting to the OTCBB if they are not professional then that is a cause to reconsider.
The next thing is to be conscious of the volume traded on the particular penny stock on any particular day; if it has low volumes, then it is not worth your time.
The recommended volume for a good performing penny stock is 100,000 shares per day, and it should at least be worth anything above 50 cents.
The most important thing has you at an advantage and minimizing the risk of loss. That is how to buy penny stocks online.