Essentials of Trading Penny Stocks

People who are looking to trade in on penny stock market might be thinking how to trade the penny stocks. Not like standard stocks, all these are not been traded in stock exchange, however in over-the-counter market. You will need to hire broker in order to perform your deals, both buying or selling shares. Basic thing that you need to ensure is having enough money in account that you are making use of to cover both share cost & broker's commission and fee.

Among best methods of trading a penny stocks is looking at an so-called pink-sheet web site. Know your penny stock's ticker sign and which market that stock is positioned in. While dealing with the penny stocks, you must buy and sell shares in very large amount, multiple by thousand, for example, or else you might end up paying additional money to the broker in commission.

Also it is helpful to know following tips if you decide which type of penny stock you have to trade.

First, search about company and see how they are doing. Penny stock companies are very fresh & are still to make some sales in market. Find if they are earning money, and how many products that they are selling on daily basis as well as their plan to make their consumers happy & returning.

Second, look in how company is earning their money or are they selling any advertisements or products or offering different services or do they have any stores or a website?

Third, delve in a trend of their marketplace. Is it on rise and find if products and services that they are selling are famous. Learn about the competitors as well.

Fourth, know how huge is the company debt by looking in their quarterly reports online. Having huge debt charges lots of money and can potentially cause company to close & stock values may sink to zero.

Fifth, focus on the news stories. Good news story regarding company might possibly send stock price to sky.

You would as well have to decide & tell the broker whether penny stocks order of yours is limit order or market order. So called market order is order where you are ready to pay whatever your market price is for that shares you like. Alternatively, for limit order, you need to specify limiting price, which must be attained for your order in order to get executed.

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Are These the Right Thing For Me?

One thing is true. They are not right for everybody. Because of how they are sold, penny stocks can be hard to locate. The difficulty is that they are not all created equal, and when you do find one that looks like a good investment, you want to know what you are getting into. The problem there is that you might not have the time to do that. Unlike the stocks on the major markets that you can buy any time you want, these shares are more limited and someone else might move in on you. This lack of availability can also mean that there is a risk that when you wish to sell you might not be able to do that so easily. If the stock price starts to fall, sometimes other investors will not want to climb on to a sinking ship and you are left with stock that has depreciated in value so much that it is worth very little or nothing at all.

Penny stocks are very speculative and should not make up the majority of your portfolio. If you have a little extra money that you would like to play around with then by all means look into the penny stocks market. You should be prepared to lose what you have invested, especially if you invest in only one company in the over-the-counter market. Do not gamble the kids’ college fund on these. They are just too volatile. They certainly can make money, and in fact sometimes penny stocks come up really big. There is more potential for a small company to grow and have their stock double in value over and over. Don’t believe what you see in emails, and don’t bet the farm away on these and they might actually be a fun and exciting way to invest your money.


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Are There Drawbacks?

There are some drawbacks to the trading systems. One of the most difficult things can be the complexity. This is sometimes not simple software to use. Developers of trading systems don’t always have their focus on the user-friendly nature of the system. Sometimes in an effort to get the system to do what it is designed to do, the streamlined of the user functions is not there. Particularly if a system is newer and has not had additional versions to work out the bugs and implement improvements you might find that you get a little frustrated trying to iron things out.

Like anything, there are scams out there. Lots of systems will promise things that are simply not believable. That is because you should not believe them. If you have seen the late-night infomercials with the guy who spends an hour a day trading and doesn’t even have to click then goes outside to play with the kids in the huge yard and poses beside the Mercedes then you probably know what I am talking about. If this system worked so well, wouldn’t the people that made it simply use it and play with the kids instead of making infomercials to sell it to you for $49.99?

Also beware of the pitfalls of slippage and commissions. Slippage happens on the forex trading systems, when the time lag between when you place your order and when the currency is purchased means that there is a difference between the two prices. For the securities market the commission has to be factored into the equation. If the commissions you pay on your trades catch up to the amount that you are making then you are working for free.

Some of them just plain don’t work. You might get something that looks really good on the screen but has been designed by some high school kid in his garage or basement and doesn’t do what it is supposed to do. If you want to evaluate which ones not to go with, anything that does not offer a free trial period would be a good start. Try it for a month and see how you do. If you do well then you can think about moving forward. Here is something to consider though; half of people will do better in real time and half of people will do worse. It is just the law of averages so be prepared that your success in the trial may not be matched when you get into the market.

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Are There Any Drawbacks to Online Trading?

There are things that can make online trading dangerous, but the dangers can be avoided with some care. One thing that is different is that you are not actually talking with a live person every time you are making a trade. This means that you might be missing out on some of the advice that you would normally be getting from your broker. You could end up buying the shares of a shipping line whose flagship vessel just went to the bottom of the ocean. While that is not likely, you can get the point. This is not a big deal for the seasoned investors, but if you are new to the game it might be nice to get some advice when you set out to buy or sell penny stocks.

Sometimes technology is not without its frustrations. When you are dealing with a broker personally you simply instruct them on what to do and they do it. How they do it is not your problem, that is their job and they will figure it out. There are times when you get everything set up and installed as it should be and it just plain doesn’t work. Computers aren’t like bicycles. You often can’t tell what is wrong and you need to get someone under the age of 18 to come in and fix it for you. That can be frustrating. Computers crash, power goes out and your kids can download a virus. Beware that there can be barriers to trading online to go along with the conveniences.

While you have the convenience of using your computer to trade, keep in mind that if you are using a desktop, you probably have the software installed on it to do your trades. If you plan to go away to the cottage for the weekend or on vacation, that means no trades unless you pick up the phone and instruct your broker the old fashioned way. It might be a good idea to try this at least once before you go away just to make sure that you can do it and there won’t be any barriers to making a trade. You can probably go online somewhere else to get information but to execute the trade you will need to know how to contact your broker.

A laptop is a better way to go if you have not already bought a system to use for your online trading. Buy one that is powerful as you don’t want to be back in the market in a year or two because the hardware is dated. Think about getting a voice-over-internet-protocol phone number. You will pay much less for phone calls from anywhere in the world and you can use your laptop to do it. Get a headset that is made for just that purpose and you have a traveling office that will save you money.

You will probably agree that the benefits of online trading far outweigh the drawbacks, just take the time to get set up correctly and educate yourself and you will do just fine.


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