The Basics Of Penny Stocks & The Stock Market
Every so often we’ll do a piece on stock market basics and where penny stocks fall into the mix. While some may seem obvious to more experienced traders, people who are new to investing might be searching for certain topics.
In this article, we’re going to go over a few very basic but important thing to not only understand about penny stocks but also the stock market in general. Furthermore, if you’re looking for information on Frequently Asked Questions regarding penny stocks specifically, check out our Penny Stocks FAQ.
For starters, let’s discuss timing of the market. If you’re new to trading penny stocks or blue-chip stocks, in general, you’ll want to know that answer to the question: “What time does the stock market open and close?”
What Time Does The Stock Market Open?
Whether you trade penny stocks or are starting out investing, knowing when the stock market opens is important. It may seem obvious but some who are new traders may not know when the stock market opens, officially. Monday through Friday, not including holidays the stock market rings the opening bell at the same time.
Question: When does the stock market open?
Answer: The stock market opening bell rings at 9:30 AM Eastern Standard Time (EST) and signals the official opening of the stock market.
But depending on your broker and depending on what you’re trading, you may have access to stocks and even futures before and after the stock market opens. While most penny stocks don’t normally trade outside of the usual market hours, some brokers will give investors access to selling and buying penny stocks before the opening bell rings. This is where we see some of these cheap stocks creating that “opening bell gap up”.
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Essentially, traders with access to “pre-market trading” can trade penny stocks as early as 4 AM EST. If you refer to some of the top online brokers for penny stocks, you’ll want to enquire with each of their options (if any) of offering extended-hours trading activity.
What Time Does The Stock Market Close?
Now, you’ll also want to understand the other end of the stock market hours. Why? Well, let’s say you buy penny stocks and know that the stock market is closed on the weekend. Due to certain market activity and global headlines, you decide you don’t want to hold certain penny stocks over the weekend.
It’s not only important to know what time the stock market closes each day but also when it closes on Friday. That seems simple but if you’re new to trading, you may not actually know the times that the stock market is closed. Monday through Friday, not including holidays the stock market rings the closing bell at the same time.
Question: When does the stock market close?
Answer: The stock market closing bell rings at 4:00 PM Eastern Standard Time (EST) and signals the official close of the stock market.
Similar to when the stock market opens, the closing bell only signals the close of normal market hours. Some brokers will allow retail investors to access “after-hours trading”. While many penny stocks won’t trade after normal market hours, some do. Access to trading these stocks may be limited but nonetheless, you might be able to access this feature. How late is the stock market actually open? Essentially, traders with access to “post-market trading” can trade certain penny stocks as late as 8 PM EST.
Stock Market Trading Hours: Summary
So, let’s sum things up here so we can move on to some other market basics:
When Is The Stock Market Open?
Based on regular market hours, the stock market is open between 9:30 AM EST and 4 PM EST, Monday-Friday unless there are certain holidays to consider.
What Is After Hours Trading?
While normal hours for the stock market are 9:30 AM – 4 PM EST, some traders have access to after-hours trading. This essentially means that the stock market is open from 4 AM EST to 8 PM EST. But some brokers may limit access depending on the type of account you have.
Basics Of Penny Stocks
I won’t get too overly detailed in this article about the basics of penny stocks. We’ve actually put together a 60+ page book for subscribers to access for free. But I do think it’s important to go over some of the very basic concepts to understand if you’re new to penny stocks, in general. So let’s go over some of the basics of penny stocks:
Question 1: What Is A Penny Stock / What Are Penny Stocks?
This is a constant topic of discussion among traders. While you may think that a penny stock, by definition, trades for “pennies”, it is a broader definition based on the Securities and Exchange Commission’s definition of penny stocks.
The definition of a penny stock, according to the SEC:
So as tradition would have it, penny stocks are shares of a company trading for less than $5. Purists may argue that but as far as generally accepted definitions are concerned, this is the standard definition from the overseeing body of the stock market, in general.
Question 2: What Does Volume Mean In Stocks?
If there’s one thing that penny stocks are known for, it’s highly volatile breakouts. But, in general, the volume of stocks will play a big role. Simply put, volume in stocks means that there are people buying and selling shares of a given stock. As you might have guessed, the volume is the number of shares of stock traded over a designated period. Some traders look at volume, minute by minute. Others might look at it day-by-day, while certain traders look at the weekly volume of stocks.
Higher volume stocks are those where there’s more investors interested in trading them. This can sometimes result from a news event and also confirms certain price trends. A spike in volume or irregular volume can give a heads-up about potential reversals, catalysts, rumors, and more.
As a general rule of thumb, when it comes to penny stocks, one should focus on the overall dollar volume as compared to share volume. If a sub-penny stock trades 1 million shares, that may not show much interest. Even though it could be “irregular” based on the previous trading, 1 million shares of a stock under $0.01, isn’t likely to offer large enough liquidity to truly make money with penny stocks. Then again, this is all based on your personal preference.
[Learn More] What Are Penny Stocks And Are They Worth Buying?
If you have a smaller account and can trade lower volume penny stocks just fine because you’re not investing thousands of dollars, then that “example sub-penny stock” could present opportunity. But if you trade a very large account, consider an average dollar-volume needs to be much higher in order for you to have enough liquidity to easily enter and exit trades.
Question 3: Are Penny Stocks Worth It?
This is another basic question we’ve seen. Are penny stocks worth it? That all depends on your trading strategy and approach to the stock market today. We know that penny stocks carry much higher risk and volatility. These stocks under $5 can fly high and drop to new lows almost within the blink of an eye.
If you thought news affected the stock market a lot, penny stock news has been known to compound that impact. To really understand if these cheap stocks are worth it, you should look at your own plan for investing in stocks. Does it include a little risk? If you can allocate a smaller portion of your portfolio to higher risk and don’t mind higher volatility, then penny stocks could be worth it to at least have a look at.