How to invest in Penny stocks?
In this article we are going to talk about the Penny Stocks , a very popular type of stock due to its enormous volatility , which can reach high returns in a short time but, in turn, have a high risk.
How to invest in penny stocks
Are called Penny Stocks to shares of companies operating small market capitalization at low prices (less than $ 5) generally OTC ( “over the counter” , also known as OTC markets ). These assets are generally considered as high risk and speculative, due to their low liquidity, large spread between the purchase price and the sale and low capitalization.
The rating of the Penny Stocks as such is determined by the price of the stock, not by the market capitalization of the issuing company. However, companies that issue penny stocks generally have market capitalizations of less than 500 million dollars.
These actions are highly prized by traders who are dedicated to speculating with horse mackerels , since their great volatility shortens the duration of the strategies. Think that in an action of less than a dollar, each movement of a penny is an important percentage of surplus value.
Types of Penny Stocks
There are three types of penny stocks , they are classified according to their risk, to the controls on them and to the OTC market in which they quote:
OTC Pink : these are the lowest-quality and the most speculative stocks, coming from bankrupt companies or with serious liquidity and financing difficulties, or from companies that still do not have products in the market. When dealing with companies that do not fulfill the necessary requirements to quote, they have no obligation to publish information and they are not audited.
types penny stocks otc pink
OTCQB: These actions are in the medium level of risk. Unlike OTC Pink, the companies from which these actions come are obliged to present documents and accounts publicly. Even so, they are still dealing with very small companies or in an initial phase of development and it is difficult for investors to predict if these will end up being viable projects.
penny stocks otcqx types
OTCQX : The companies of which these shares are part, within the risk that they continue to carry, comply with many of the financial standards, are obliged to present documents and accounts and are usually audited, so they offer greater security for investors. Sometimes they are companies “sponsored” by other companies or large investors who bet on their future. However, the probability of success when investing in one of these companies, even if it is low, is much higher than choosing the two previous options …
How to invest in Penny Stocks?
Normally, there are few brokers that offer to operate in penny stock markets , which do so at very high commissions and with value restrictions.
Therefore, the most recommended and common way to operate this type of stock is through online brokers , who offer the service of trading shares over the Internet.
If you need more information about brokers and the commissions they charge, you can consult the following link: TD AMERITRADE
Benefits and risks of investing in Penny Stocks
The main advantage of the Penny Stocks is that they are stocks with values so low that any impulse in the price, even if it is not very large, can provide a large surplus value in a very short time. Sometimes the Penny Stocks have managed to double or triple their price in a single trading day.
So if we analyze a company, we understand the sector in which it operates and we see that they are carrying out coherent actions we might be able to detect a great investment opportunity.
However, the truth is that it is very difficult to detect these investment opportunities with penny stocks and the risks that we face when investing in them are high.
First of all, the biggest danger of investing in Penny Stocks is the lack of information and transparency about the companies, which makes their analysis very complicated, which makes it very difficult to know which to invest in and when to do it.
Furthermore, this lack of transparency makes it possible to manipulate prices or information, which could be detrimental to small investors.
Finally, we must not forget that having so little liquidity, we can be trapped in a price almost without counterpart, even if we are in profits it is likely that it will cost us to sell our shares with a good margin.
In short, a penny stock is not a recommended action for anyone, but for those investors who understand the matter and know the risks involved in investing in shares of low market capitalization and low liquidity.
If even with this, you dare to invest in these types of actions, experts recommend that the investment does not exceed 5% of your total assets allocated to financial investments and, above all, that you always have a disciplined stop loss strategy .
Once you have known the characteristics and risks of the Penny Stocks, would you invest in these types of actions? Would you assume high risks in exchange for the possibility of generating large profits? Leave us your opinion…
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