Do you want to make it big in stocks but you have limited funds? If so, investing in penny stocks will let you purchase stocks at a cheap rate with the potential of making large amounts of profit. Despite this sounding easy, here are 2 factors to consider before picking your penny stock investment.
Do Your Homework
As is required in any field of finance or investment, it is crucial that you spend time researching the companies that you are buying. If you are looking to buy or trade penny stocks, you will need to be able to make quick decisions, be able to stand out, and have a fundamental understanding on trading patterns. Keep in mind that even though there are tons of legitimate penny stocks out there, you need to keep your eyes peeled for scam artists and corruptions.
If you plan on purchasing penny stocks, remember that they will not be regulated by major stock exchanges. This is due to decreased market capitalization and liquidity. There is little information surrounding the penny stock market, therefore, it is recommended that an individual contacts the company and discusses any issues or concerns that they may have with someone directly. Additionally, following a company’s competitors will give you a good sense of how the penny stock company is doing. If you have found a stock that you want to purchase, you can do this through Pink Sheets.
Watch Out For Scam Artists
Mentioned previously, penny stocks are at high risk of scam and corruption. A common penny stock scam is called the “pump and dump”. What this means is that a stock’s price gets manipulated by the implantation of false information surrounding the stock’s potential through various mediums. Scam artists will then sell their share of stocks for a decent amount of profit and watch as the price falls drastically.
That said, any serious penny stock trader should be able to recognize a scam when they see one. If you don’t know how to recognize a scam, watch daily trading volume and time your trades. However, if the price and the trading volume increases normally, it is probably safe.
Despite the pitfalls of the penny stock industry, if you develop an understanding on trade patterns and the best times to invest, you can do considerably well in the market.
Featured Image: depositphotos/Baloncici
