3 Factors That Contribute to Penny Stock Price Changes
When it comes to finding penny stocks to buy, the amount that investors need to understand can seem overwhelming. But, with there right information by your side, making an educated decision about which penny stocks are worth it, can be much easier than previously imagined.
Now, one of the first questions that investors tend to have is what drives penny stock prices. And, the short answer is that there are three main factors; news and events, fundamentals, and more recently, social media popularity. If this seems too simple, that’s because it is quite simple. And in the past few years, we’ve seen a stark move away from trading off fundamentals with both penny stocks and blue chips.
What Makes Penny Stocks And Blue Chips Different?
While blue chips and the stock market as a whole can both be highly speculative, penny stocks tend to be more speculative and volatile than any others. This is due to both their low price and the way that investors tend to trade them.
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Additionally, the large price fluctuations that penny stocks see, often is the reason that investors choose to buy them. But investors should always understand that with penny stocks, risk tends to be quite high.
So, know exactly what your tolerance for movement is and what your trading strategy is as well. With a consistent strategy and understanding of who you are as a trader, making money with penny stocks can be much easier than previously imagined. With that in mind, let’s take a look at three things that drive the price of penny stocks in 2022.
3 Factors to Know About When Trading Penny Stocks
- News and Events
- Fundamentals
- Social Media Popularity
News and Events
The most obvious and largest contributing factor to how penny stocks move is news. Because of their low price, penny stocks tend to be extremely speculative. And, in the past few years, the impact of online news and retail traders, has helped to make the market more reactive than ever.
While we like to think that penny stocks trade off of fundamentals, the likely cause of movement is typically news or events. And, this could be in the non-traditional sense as well. We often will see penny stocks move sharply in value based off of rumors, announcements, or even as much as a Tweet. And because of this, staying in the know and understanding why penny stocks are moving is important. With small caps, the best investor will always be the one with the most information on hand.
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And with the power of the internet and a real-time news source, staying ahead of the curve is more accessible than ever. But, investors should understand that news goes both ways and can affect penny stocks thusly. So, with all of this, we see the importance of news and events on how penny stocks trade.
Fundamentals
The second most important factor to penny stocks movement is the fundamentals of a company. If you’re not familiar, the term fundamentals means any factor that is inherent to a business. This could be revenue, profitability, EPS, and everything in between.
The majority of these will always be listed in a companies quarterly or yearly balance sheet. While fundamentals can cause large and swift movement after they are released, many investors use them as a way to predict the long term future of a company. Now, you might be thinking, penny stocks are typically traded in the short term right? Well, yes, however, some investors choose to find penny stocks that could be worth investing in, in the longer term period.
And, if the fundamentals are rock solid, often, we will see that reflected in the price of the underlying stock. If they’re not represented in the current share price, this can also present an opportunity. But, knowing exactly what the details about a company are and how to use them to your advantage, will help you to make money with penny stocks.
Social Media Popularity
In the past two years, we’ve seen social media become a major phenomenon for how penny stocks trade. This famously occurred with GameStop Corp. (NYSE: GME), AMC Entertainment Holdings Inc. (NYSE: AMC), and more recently, companies like Vinco Ventures Inc. (NASDAQ: BBIG). While there are plenty of social media platforms that investors use, the most popular tend to be Reddit, Stocktwits, Twitter and a few others.
These platforms allow investors to come together to discuss stocks they’re interested in, and ones that could have potential to move. Keep in mind that penny stocks mentioned on social media, tend to be extremely volatile. This has been the case with the stocks mentioned above, and will likely remain true. The best way to use social media to make money with penny stocks is to pay close attention to what companies are being discussed.
And, social media should never be used alone. Rather, it should be put into context with the other two categories mentioned above. While it can be tempting to put money into a penny stocks simply because it was discussed online, this most of the time, will lead to losses. So, use all of the information available to you and consider all of the opportunities that a company may have.
Are Penny Stocks Worth Buying Right Now?
If you’re wondering whether penny stocks are worth buying or not, the short answer is that it is up to you. Because investing is such an individual task, knowing if penny stocks are right for you or not is crucial. As you probably know, penny stocks tend to move in price frequently and in large amounts. And because of this, it is easy to watch your portfolio swing in either direction.
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So, always know exactly what is affecting the stocks on your list and how to take advantage of the current market. Investing in penny stocks in 2022 is unlike any other time. And because of that, the one with the upper hand will always be the one with the most information. Considering this, do you think that penny stocks are worth buying right now or not?
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