People planning to invest online tend to avoid buying penny stocks. This is mainly because they think that it is too risky to buy penny stocks. However with the help of an online broker, buying penny shares not only becomes an easy process, but also has the potential to make you rich. Trust us, it’s a hell of a lot easier than investment banking.
Choosing the right online discount broker is essential when investing in penny shares. Choose a registered broker, who is well versed in online investments. Even the commission price the brokers charge is another point to consider when choosing your stock broker.
It is always better to do so research on penny shares when you trade online. Though penny stocks don’t require as much analysis as $5 shares, you have to learn about the company before investing in it.
1. Consider volume when you buy penny stocks
Buying penny shares, you have to invest in large volumes to make a profit. As volume is essential when you buy penny stocks, make sure you choose an online discount broker who can arrange for this volume of investing.
Moreover, it is not advisable in investing in a company that trades thousands for only one day, and doesn’t trade on other days of the week this is because the average trading per day in such cases may turn out to be a few hundreds.
In addition to this, you have to find out the number of trades the company trades per day. This is because if there is no buying or selling, you may end up with ‘dead money’ where the only way you will finally sell your stock at a very low price.
2. Have an entry and exit plan
When you buy penny stocks, it is safer for you to have an entry and exit plan, and stick to it. This is because penny stocks are generally volatile and tend to move up and down quickly.
Even a few cents drop in the price of the stock leads to a sizable loss. So make sure you keep your stops closed where you have to move to the next available opportunity when you get stopped out. Keep watching the market as whether you acknowledge it or not, the market is always telling you something, which is usually the best decision to make.
The broker you choose should be competent enough to monitor your penny shares on a regular basis. This is because an increase or decrease of even a few cents in penny share can lead to a profit or loss in your investment.
3. Don’t invest all your money
Investing in penny stock has to be done based on how and where you got to know about the stock. This is because most people get to know about penny share through mailing lists.
Though there are many great and safe penny share newsletters, there are many unscrupulous companies with unscrupulous newsletters. To spot the safe and bad companies, you have to subscribe and track the investments to prove there is a legitimate opportunity for making money.
Last, but not least, never invest more than 20% of your portfolio in penny stocks. Investing too much of money leads to an increase in the odds of your losing capital. With these tips in mind, it proves to be much safer to buy penny stocks.