Top 3 Things You Need To Know About Investing In Penny Stocks

A penny stock is any stock that can be traded for less than five dollars per share (it used to be defined as less than one dollar).

Many people are drawn to the idea of investing their money in penny stocks because they believe it’s an easy way to get rich quick. They have been inspired by the story of Timothy Sykes who invested a few thousand dollars into penny stocks and became a millionaire in just a few months.

That being said, penny stocks are only a suitable investment for people who have a high risk tolerance. If you believe that you can turn a hundred dollars into a hundred thousand dollars within a week or a month, you’re probably going to be disappointed with the results of your penny stock investing.

Penny stocks are also highly volatile, as they are often for new and growing companies that have very limited resources.

That being said, several people have made serious money out of investing in trading stocks, so you can to so long as you are prepared to take risks and conduct careful research.

Here are the top three things you need to know about investing in penny stocks:

1. Gather Enough Information About The Company You Want To Invest In

If only one piece of advice could be given to you about investing in penny stocks, it’s to gather as much information about the company you want to invest in as possible.

The best way to go about this is to only limit yourself to investing in penny stocks that are featured in the major stock exchanges such as the NASDAQ or the New York Stock Exchange. The companies featured on the major exchanges are more reputable and tightly regulated, but you should still research them anyway before making a buy.

2. Don’t Invest In A Company Approaching Bankruptcy

This may seem obvious, but it’s still worth pointing out. Many of the companies with penny stocks are either new and growing or they are approaching bankruptcy. Either way, avoid investing in companies with a poor track record. Again, research is key here.

3. Don’t Invest In Stocks With Low Liquidity

In addition, don’t invest in stocks that have low liquidity. The reason why is because you’re taking a major risk in doing so: there may not be any buyers for a company with low liquidity so you can’t sell your shares, and furthermore stocks with low liquidity are also often manipulated by trading looking to hype up stock and then sell it when prices are high in a pump and dump scheme.

Investing In Penny Stocks

Trading penny stocks can certainly lead to high rewards, but with that comes high risk and a large probability for losing your investments. If you do choose to invest your money in penny stocks, be sure to research the best trading strategies and be careful about the specific companies you invest in so you can minimize your risk and maximize reward.