If you are a new penny stock investor, you need to understand a few things before you jump in. You can significantly limit your losses by avoiding several pitfalls and find some investment opportunities. To help you get that, here are several basic tips to invest in penny stocks.
The Markets to Trade Penny Stocks
We have various stock markets that allow us to trade penny stocks. Yet, those exchanges are not equally created.
You have to always remember, in order to gain profit, you need to avoid risks of shares at low price, but still try to improve your chance to succeed at the same time. The key to do that is by knowing the right markets.
Since penny stocks define as any shares traded for less than $5, we can find many penny stocks on various big exchanges, like the NASDAQ and the NYSE. If you see those big markets, you even can find a few shares which trade for less than $1.
Besides, you have to avoid stocks that are listed on low-quality exchanges, like OTC Markets Group (formerly known as The Pink Sheets). These markets normally have a low standard to start and require almost no free at all. Thus, any company can be publicly traded there.
Avoid Free Stock Picks
Besides choosing the right market, you have to also avoid free stock picks. Penny stocks typically thinly traded and have a super-low price per share. That situation invites many promoters and scam artists.
These scammers usually buy hundreds of shares from any companies which will go bankrupt anytime soon. Then, they make some lies to make those shares get a higher price.
Those who buy these shares may think that companies have the ability to become huge businesses. This is the way the promoters and scam artists gain profits.
Other than this reason, sometimes companies that own these free stock picks hire a professional to tell lies about their business. That way, this small publicly traded penny stock will get a higher price and easily raise money.