Everyone’s Heard Of Them But Do You Really Know How To Trade Penny Stocks?
The first step when looking to invest in penny stocks is to understand what everything means in the stock market. What does it mean to invest? Basically, when you spend money in the market you are buying stocks which are small pieces of ownership in a company. The actual price of the stock reflects the value investors see in a company.
A penny stock’s price is constantly changing during the primary market hours of 9:30 AM to 4:00 PM EST. However, a stock’s price can also change if buying and selling occur during the pre-market and after-market hours.
So now that you know what a stock actually is and when you can trade them, you need to learn how to find them. When searching for a company on the stock market you need to know its stock or “ticker” symbol. This is not a very difficult task as the internet can tell you it right away. When you decide to start trading penny stocks, you will generally find them on the OTC (Over The Counter) Market.
Why would you even want to invest in the stock market, to begin with? The obvious answer is to make money of course. The primary way to make a profit is to buy penny stocks low and sell them at higher prices. Some traders take a different approach known as shorting.
This is where you are betting against the market and are anticipating a stock’s price to fall. If it does fall, then as a shorter you would make money. As far as how to short penny stocks, we’ll get into that in a more advanced article. Just know that there are ways to make money with penny stocks when they go up and in some cases when they go down in price.
What Is Your Goal With Trading?
Like I said earlier, everyone is trading the market to make some money. However, this is not what I want you to think about. There are different types of trades. You have people who like to trade long-term, short-term, intra-day, etc. Based on how you decide to trade says a lot about what you want to accomplish.
For instance, if you want to trade short-term or intra-day you need to pay attention to the markets constantly. This probably means that you consider trading a full-time job because it takes that much time to make well-informed trades.
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Maybe you are looking to trade long-term. You do not need to be on top of the market 24/7, you just need to read the daily news and check in every so often on your investments. If this is the case, then you are probably investing as a side-gig.
Penny Stocks Basics: How Is That Bank Account Looking?
Another crucial factor to assess when investing in penny stocks is your portfolio size and the amount of money you have. You should not be investing money that you need on hand at all moments. You should only be investing money you have saved to the side that you can actually afford to lose. Life has a funny way of turning sour at the worst moments so you should always be prepared for that.
In the section “What Is Your Goal With Trading?” I mentioned people who intra-day trade. If you want to do this, you must have a minimum of $25,000 in your trading account to bypass the pattern day trader rule. This rule states that you cannot enter and exit a trade in a single trading session more than 3 times per every 5 trading sessions.
Maybe you are looking to do short-term swing trades. If this is the case, you will most likely not have to deal with that pattern rule. There is also no-account minimum required. It is typically recommended to have an account size of at least $10,000 if you plan on swing-trading.
Penny Stocks Basics: How Are You Suppose To Place Trades?
At this point, the only thing you really need to know is where you actually place your trades. This is where you decide what brokerage firm you would like to trade on. Each broker has its own pros and cons that you must evaluate. Some key factors include the minimum account balance you must hold, reliability, proper research and charting tools, efficient trade execution, etc.
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The great thing about this day and age is that you can use most platforms for free and see how you feel about them. So, do not be afraid to set up multiple brokerage accounts to see which is the best fit for you.
Penny Stocks Basics: Practice Is Key
I think the most important thing for new penny stock traders to learn is patience. If you do not have any experience trading penny stocks, you might want to consider paper trading. Paper trading allows new traders to practice with fake money to help them understand market trends and develop their trading strategies. This is crucial for any new trader to learn so you should definitely take some time to paper trade.
Closing Thoughts About Trading Penny Stocks
The feeling that trading penny stocks brings to investors is like nothing else. These investments move so fast and can bring immeasurable amounts of profits if done properly. Penny stocks are by no means a risk-free investment, they are super risky so treat them as such. Remember, the more you practice and develop a game plan the more efficient and profitable your trades could be. You should also do adequate research on any investments that you plan on making.