What Are Penny Stocks and Can You Make Money Trading Them?

The attraction of making money online is understandable and with the rise of the internet, a plethora of cash creation schemes have also been invented – and a number of these include online trading activities.  Trading online can be undertaken via a range of different methods. From balancing Bitcoins to pushing Penny Stocks, there is no end to the ways you can make money from your laptop or smartphone in the modern world. 

But what exactly are Penny Stocks, and Can You Make Money From Them?

What Are Penny Stocks? 

According to the SEC (Securities Exchange Commission), a penny stock is any form of trading with a value of less than $5 a share.  Whilst these are commonly known as penny stocks, the prices can range from between 1 Cent/1 Penny to around $5 (as a maximum).  A large proportion of the companies who sell their shares at such low prices are new names, and therefore haven’t yet established a successful track record within the business arena. 

This means that their shares could become a possible fast-growing asset for smart traders and investors alike. 

Can you make money? – Well penny stocks are a cheap way to get into trading, and there are plenty of individuals making a neat buck from this popular method. The barriers to entry are low and if you are prepared to work at it then there is money to be made. However, whilst it’s easy enough to make money this way, it’s also pretty easy to lose it too. So knowing a few tips should help you on your journey. 

Start slow, and learn how to understand penny stocks before trading all your savings away!

How Can I Make Money From Trading Penny Stocks? 

Whilst this method of trading is often seen as a gamble – when pennies are played correctly, they can really pay off. If you can learn to trade penny stocks successfully, then you could be well on your way to an early retirement, which is the dream right? 

Indeed, penny stocks do fluctuate rather dramatically, so they can easily become your best friend or your worst nightmare (if you’re not in the know). To make your journey slightly easier, we’ve come up with our Three Top Tips…on Trading Penny Stocks, just read on for more…

Top Tip 1 – Not everyone is your friend

When you start to trade you may find that you get contacted by upsellers who have a marvellous opportunity for the right investor (you). This has got to be one of the most popular lines of trade, which involves companies purchasing penny stocks for the cheapest price possible. Often this will involve ‘Over The Counter’ or OTC stocks that aren’t traded on the main exchanges and are therefore not as regulated. What traders then do is ‘Upsell’ the penny stocks, and they do this by convincing other investors they are worth more than they really are. 

Whilst this might work for some investors, it’s not exactly legal all the time. “So why are you telling me?” – You’re thinking…

Well, knowing how to trade penny stocks also means knowing how to avoid scams.  Being a newbie means that you won’t have much “trade trust” yet, and we want to help you avoid buying scam stocks that are never going to make you any money.  That’s not to say that OTC stocks never make money, but just that it is a very risky prospect and most people are pushing these for a reason.

Be mindful and do your homework, it will pay off – we promise!

Top Tip 2 – By Cheap and Sit On It 

This might be known as the ‘get lucky’ method, but it often works out. The trick here is not to put all your eggs in one basket. Invest in a portfolio of penny stocks, and just sit back and wait. What you are searching for here are ‘growth stocks’. As the name suggests you are looking for stocks at a very low price that have the potential to grow well in the future. 

So these companies may not be paying dividends to their stockholders now because they are reinvesting their cash into future development (which tends to depress the price) but once their product or service starts to make waves, then the price of the stock will soar.

Of course, if this was easy then everyone would do it and it can be hard to tell where the value of a stock is going, so ask around, do your research and don’t get convinced too easily. 

Top Tip 3 – Trading (High Frequency)

This method, for the most part, is based on technical analyses.  One of the key points about penny stocks is that a very small change in price can make a massive difference to your profit. For example, a penny increase in the price of a stock that you buy at 10c is worth much more than 1c on a $1 stock. This means that there is great potential to make really good money by spotting very small movements in advance.

Trading teams (or individuals) that specialize in this method often take into account financial trends, patterns, and more – in order to determine the future of a business’s or stock’s viability.  By identifying these trends and patterns, high-frequency trades can be made based upon predictions. In other words, they buy and sell many times in a day, always looking for tiny fluctuations in stocks that have a very low value.

If you can find stock at a great price just before you ‘predict’ it goes up, then you’ll easily be making profits in no time. 

Just remember, knowing when to buy, is just as important as knowing when to sell!

This is not investment advice. You should consult an investment professional or financial advisor before making any investment.