Penny stock trading can make for not only some great investment opportunities but also for a great amount of fun. Just like any other trading or purchasing of stocks and shares, penny stock trading brings with it its own set of advantages and disadvantages.
There’s no denying that penny stock trading can carry a significantly large amount of risk – that amount of risk is dependent both on how much money you’re willing to risk, and how much you know before you risk that capital.
In this short guide, we’re going to explore the world of penny stock trading in as much detail as possible, as well as provide some advice on what we think are the best techniques in penny stock trading and some information that might help you decide whether or not you think you’ll be a good fit for trading penny stocks.
Are Penny Stocks The Best Stocks For You To Start Trading?
Whist the idea of trading penny stocks is fantastic, there is absolutely no denying that a lot of new investors end up getting sucked into it by the inflated prospects of making an extremely high monetary return from low investment. Whilst this is entirely possible, results such as these rely on a very wise and very well-thought-out investment being made in the first place.
Penny stock trading is, without doubt, pretty high risk. This is due to the very nature of penny stocks and why they exist. Penny stocks trade in a way known as over the counter trading. Over the counter trading is a way of stock trading that allows companies to list their stock, regardless of how good or bad an investment they might make. For example, companies on major stock exchanges are required to meet a number of quite strict rules and regulations. These rules and regulations must be adhered to by that company that is listing their stocks for sale at all times. Should they not be adhered to, the company will no longer be allowed to list their stock for sale on that exchange.
On the other hand, over the counter trading eliminates these strict rules and regulations and allows, therefore, any company to place their shares for sale. This means, though, that there is an extremely large variety of different types of companies that have shares that you can buy into vis over the counter trading. Some of those companies will be there as they are small, and may have had the help of Pink Sheets to get their shares out for sale to gain some capital for expansion. On the other hand, there may be a company listed for sale that’s going through severe financial difficulty and that is listing its stocks for sale in order to gain money.
Due to the majority of the companies that are listed on small exchanges via over the counter being small and relatively unknown to the wider public, there’s for the most part not a great deal of information available on them. This, in turn, means that investors often aren’t able to be as informed as they would be, say, if they were looking for an investment on a major stock exchange.
How You Should Get Started – Paper Trading
So, you’ve decided that penny stock trading is for you and you’d like to get right ahead and find out the best way to start learning. There are many ways that different people may recommend learning the best penny stock trading methods. However, mock trading, also known as paper trading, is very advisable.
Paper trading completely eliminates the risk that usually associated with any type of trading, since no real money is involved. Paper trading is exactly as it sounds – it is the process of simply practicing mock trades on a piece of paper, without money, until you find yourself being successful.
In terms of what you can do for preparation before you start trading real penny stocks, this is undoubtedly one of the easiest processes that you can go through to start learning stock patterns and how best to make money. The main advantage of paper trading is that it allows you to make mistakes and reap the benefits of making those mistakes, without suffering the downfall of those errors. For example, if you’re paper trading and you “purchase” a share in a company that then goes bankrupt the next day, you can look at that share you bought and the statistics behind it. You might be able to better understand why the company failed, and identify a trend in failing company’s stocks. These trends are without doubt far better noticed with fake money as opposed to real money!
Choose The Areas That You Want To Put Your Focus Into
Finding the best industry does not necessarily mean finding the same industry that one of your fellow investors is making good returns from. Similarly to a lot of other disciplines, finding an industry that you’re knowledgeable on is what is most likely to pay you the most dividends.
For example, if you are fully clued up on architecture and you know what new architecture companies are up and coming, as well as the steps that a new company in the business should be taking, then you’re already in an excellent position and are an excellent judge of what any should be doing. This means too, that you’ll be a good judge of whether or not a company is likely to make for a good investment in that industry i.e. whether or not you think it’s likely that it’s going to be a successful venture.
Choosing what you know is always the best. If you’re able to build up a good base of knowledge and experience from paper trading and you choose an area of industry that you are informed on, you’ve already taken two great steps to making a wise investment. Click here to get more information.