By definition, a penny stock is a common stock that sells for less than five dollars per share. These stocks are normally traded over the counter through the OTC Bulletin Board and are not traded in major stock exchanges like the New York Stock Exchange and the NASDAQ Stock Market.
Penny stocks are growing in popularity, however, it should be noted that although they are cheap, they are still risky and most professionals label them as dangerous. You can probably compare a penny stock to a slot machine. You have to but only a quarter into a slot machine to play the game, if you want to play the penny stock game you will need to invest up to five dollars per share The risk factor of playing these games is very high and in addition to this, both penny stocks and slot machines have in a lot of cases a very small return on your investment.
So are penny stocks safe to invest in? Yes, they are, if you buy penny stocks solely from reliable penny stock picks. You should bare in mind that penny stocks are just like regular stocks peddled by traders. Of course you will have to make sure that the trader you are going to deal with and also the company you are about to invest in are both credible and have an outstanding record. Penny stocks are often subject to manipulation and fraud so being careful is paramount.
So how to get started trading penny stocks? First you need an investment strategy. This strategy will involve a systematic way of finding profitable penny stocks. You also should have an entry and exit plan when buying penny stocks and you of course have to stick to your plan. Always keep in mind that even a drop of some cents in the price of the stock leads to a sizeable loss.
There are also websites that offer penny stock picks. But, just like what an experienced trader once said, “If you are still looking for free information on the internet, then you are not ready for the stock market.”
Once you get your feet wet and have made a few trades then you will feel more comfortable trading penny stocks
