Penny stocks are highly speculative stocks valued at less than a dollar. Most of these stocks do not usually trade on the stock exchange. Many investors may buy shares cheaply and then sell them after a while making huge profits. This is possible as an investor can hold thousands of shares for a small amount of capital. There are several guidelines to penny stock investing
Tips on penny stock investing
Use limit orders
Investors may be manipulated to buy penny stocks at prices that may not be the same as the value of the said share. This is because these penny stocks trade very thinly. There is, therefore, a deviance between the bid and the asking price. Market makers can try to make some quick bucks by fooling the investors. Limit orders enable the investors to buy penny stocks at their price.
Trade during regular hours
After-hours trading can occur due to small volumes of stock. This trading is certainly not correct, as it does not effectively show a match between buyers and the sellers of stocks. Trading during after-hours can open gateways for trading stocks above or below the closing price of the stock. When dealing with penny stocks the increase or decrease of a few pennies can make or halt a trade.
Buy or sell for a reason
Investors should not buy or sell the stock just because they are moving. Investors of penny stocks should carefully analyze the stock and know the reason why they are buying the stocks. This is especially for stocks that have already increased in value. An investor must have a good reason to invest in these stocks otherwise they may end up investing in stocks that will not be profitable.
Do not go for performance
Many investors chase trade, and this is a big mistake that investors make as they invest in penny stocks. These investors often wait for the stock to take off to start investing in them. This is not right, as time may not be on the investor’s side when they finally decide to invest. To avoid this, investors should be able to invest in stocks at the right time and follow the proper guidelines to make productive investments.
Expects 90-day holding period
Penny stocks can be very unstable in nature. At times, they move up and down. Being unpredictable investors should expect a holding period of up to 90 days. This will give the investors time to study the trends of the stock and even sell them if they see it going down soon.