Investing in penny stocks has its share of ups and downs, tips to be adopted for greater success and pitfalls to avoid. This isn’t gambling if you know what you’re doing. You need to think of it as increasing the value of your investment portfolio with smaller seed capital but with larger returns to compensate for the higher risks involved.
The Upside
With these stocks, you can start investing and earning with as little as $100 to open your online account. Indeed, you are well advised to start with a minimal capital investment while you are learning the ropes of the business. It does not help your stock investment portfolio to put in more than you can afford to lose!
Another benefit of investing in penny stocks is that you can have huge profits out of small investments. Well, of course, you have to know the basics of the business before this happens but the potential is exciting. Also, you can avail of the services of online discount brokers for these investments. Unlike traditional stockbrokers, you can save on the high costs of sundry service fees and commissions with these discount brokers. In effect, your bottom line will benefit.
How To Invest Profitably
In order secure the most benefits out of investing in penny stocks, you can apply the following tips:
- Look for the stocks with the highest price-earnings ration but the lowest price-earnings-growth ratio.
- Stick to your entry and exit plans. You must control your monetary greed even when it seems that the penny stock in consideration will rise in value after you have reached your profit limit – it often will not move in the way you predict or desire.
- Go with the market flow. You cannot control the market and as such, it is futile to want to change it to suit your profit objectives.
- Make decisions based on reliable information coming from the thorough analysis of charts and other tools necessary for successful investing. Inside information and hot tips can be manipulative practices meant to deceive investors and, hence, rob them of their money.
The bottom line is that these stocks operate in similar ways as their Big Board-listed stock counterparts. Hence, you can apply your knowledge in mainstream stock trading to penny stock trading with a few revisions to account for the higher risks involved.
The Risks
Speaking of risks, you must avoid the pitfalls that come with these investments. Keep in mind that these stocks can be very speculative and can be easily manipulated, which means that investors must maintain vigilance over their investments decisions. One of the most notable pitfalls in trading these stocks is the provision of misleading financial statements to investors. You have to double check with independent bodies like the Securities and Exchange Commission, when applicable.
Investing in penny stocks is a good decision where your investment portfolio is concerned. You can enjoy the benefits just as long as you adopt smart investment management and avoid the pitfalls.
Source by Mike Singh
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