Most of us would have heard stories of people turned into millionaires by investing in penny stocks. It’s not as fascinating as it sounds, but you can for sure accumulate a decent wealth if you carefully identify and trade penny stocks. In this blog post, we would understand some of the proven methods on how to make money trading penny stocks?. We will also introduce some of the reliable penny stock brokers and go through penny stock success stories.
What are Penny Stocks?
In simple words, penny stocks are low priced stocks and are riskiest and most speculative. They usually trade below $1 (below INR 10 in India). They’re very much away from all the glitz and glamour of major stock exchanges and considered most notorious and highly untamed. They have low market capitalization and aren’t generally listed on large national exchanges.
Penny Stock trading demands hard work and careful studying if you hope to become rich. It’s not everyone’s cup of tea but anyone can learn the strategies that yield the most success in penny stock trading. Since share prices for penny stocks fluctuate erratically, you can easily lose money.
Newbie Investors who are instantly attracted to penny Stocks need to be wary because they entail high risk losses. Although investing all your savings in the lure of obtaining high returns from penny stocks can be very tempting; if you’re not careful, all of it can be instantly wiped out owing to wavering prices. Penny Stocks are a favorite among scammers but that doesn’t mean that there is no potential for fair and profitable trading.
How to make money trading Penny Stocks?
While trading Penny Stocks, it’s essential to minimize risk and invest in high quality stocks with a maximum potential for turning into profits. If you have a registered broker, they will guide you on the best course of action but if you’re on your own, you need to cautiously place one foot before the other and emerge victoriously. Below are 5 ways to make money trading penny stocks.
Sell your Stocks quickly
When it comes to penny stocks, traders get lured by 1000% return that often ends in disaster. So, it’s important to sell your penny stocks as soon as possible and take at least 20%-30% returns instead of waiting.
Trade 1 Stock at a time
Instead of aiming to make a large profit in a single trade, trade more in a day with a specific goal in mind. Small profits yield large results eventually. This way, you have less chance of losing money and a higher probability of making a steady income with penny stock trading.
Choose Penny Stocks with High Volume
Trade stocks that sell at least 10000 shares a day instead of trading stocks with low volume. Stocks with low volume generally have high bid-ask spread and it can be difficult to get out. Both dollar volume and number of shares traded are important.
It’s important to read penny stock disclaimers since the people in sales don’t always have your best interests at heart. Reading the disclaimer will help you identify any false promises hidden behind aggressive pitches.
Risk is Imperative but not Essential
Profitable penny stock trading is not possible without risk. As they are highly volatile, it is imperative that you have strict stop losses. Also, it’s important to aim for small profits so that your losses; if any, remain small as well.
Also Read: Machine Learning algorithms for Trading
Penny Stock Success Stories
Although there is high skepticism about penny stock trading success, they’re not wholly dangerous and there are plenty of success stories of companies and investors to derive inspiration from. Here are two spectacular Penny Stock trading success stories:
Kumar Wire Cloth Manufacturing (BOM:513703):
This Indian textile stock was trading at 2 Rupees (3 Cents) owing to high costs and zero profitability. But currently, it’s trading around 40 Rupees (60 Cents) that marks a massive 2000% gain making it an astonishing penny stock success story.
Quality Systems (QSII)
Quality Systems was a healthcare software and tech provider that traded below $1 until the Healthcare Industry transformed to utilize cloud solutions in recent years. In a short while, they expanded to a 1400% increase in gains.
See how the price surged from 0.8$ in 1998 to 15$ in 2017 (making a high of 45$ in 2011)
Where to Buy Penny Stocks?
You can either research and find good companies to invest in or find a suitable online brokerage service to join, to buy Penny Stocks. If you decide to find companies yourself, you need to do your own research and find potential emerging companies that may scale up. But if you decide to avail a brokers’ service, you need to be careful while choosing one. Some brokers charge high fees and you need to watch out for those.
Here are 5 best Penny Stock Brokers to choose from, if you are a new investor. Please note that there are no specific penny stock brokers in India, you can trade penny stocks through your regular brokers.
Charles Shwab has a very transparent fee structure and are one of the oldest brokers that you can trust with your money. They charge a flat trading fee of $8.95 and allow high volume penny stock trading with no additional fees. Charles Shwab is the best penny stock broker for beginners. They have reasonable rates and will also help you expand your portfolio to greater prospects.
Ameritrade is another top penny broker in 2017 that charges $6.95 per trade. They have excellent service and provide quality research to help clients obtain the best results for their investment. Unlike cheaper discount brokers, Ameritrade provides superior value and have advanced trading platforms to enable easy, active trading for new investors.
Ally Invest is an affordable trading platform for both new and advanced investors. They offer commissions as low as $3.95 and provide convenient investment products for new investors to get better in the trade. Ally Invest’s ease of use and reliable trading data and research tools make it one among the best Penny Stock Brokers of 2017-2018.
eTrade is an Online Trading Platform that allows convenient penny stock trading to new investors. Depending on the amount of risk you are willing to take, they guide and advise you to trade on penny stock investments and get good returns. Although they charge higher fees than other trading platforms, quality of service is exceptionally good on eTrade.
Merrill Edge is a Penny stock broker that provides access to investment advice at Bank of America branches. At a stock trading fee of $6.95, Merrill Edge offers 24×7 customer support and high-quality research for Penny Stock Investors.
In order to make money trading penny stocks ,you need to be patient and follow proper risk management. If you think it can make you rich overnight, you are only gambling your money. Technical analysis may not always work for penny stocks, but you should always look into company’s fundamentals before investing. Let us know in comments section if you have any queries.