Penny Stocks 101
So you've decided to jump into penny stocks and give it a whirl. The opportunity
of investing just a few bucks with the potential of 1000% gains is certainly attractive.
Did you know True Religion Apparel, Inc. (TRGL) was once a penny stock? It now trades
at over $30/share.
The terms "penny stocks" and "micro cap stocks" can be used
interchangeably. Technically, micro cap stocks are classified and based on their
market capitalization or market-cap, while penny stocks are looked at in terms of
their price. Definitions vary, but in general a stock with a market capitalization
between $50 and $300 million is a micro cap. (Less than $50 million is nano-cap)
According to the Securities and Exchange Commission, any stock under $5 is a penny
stock. Others consider only those stocks trading at less than $1 to be a penny stock.
When it comes to investing, not all of us have bucket loads of cash to invest into
the stock market. With stocks trading at under $5 a share, penny stocks make it
possible for almost anyone to try their hand in the marketplace. The penny stock
market can certainly be exciting, and can also be a highly profitable way to make
money. Gains of 50%, 100%, 500% and even 1000% are not uncommon when trading Penny
Most people that want to learn to trade often begin trading penny stocks. Day traders
love penny stocks, as volatility in the stock price allows them to trade in and
out of a stock on a daily basis. In most cases volatility is a day traders friend
if played right.
The logic behind trading Penny Stocks is that they're far less expensive then their
Blue Chip counter-parts. The fact that you don't have to risk a heap of money also
makes them a lot of fun to trade. Penny Stock trading is one way to learn the stock
market but it can also be very risky. It is wise to install a stop-loss tactic and
protect your capital with prudent exit strategies for those of you who are looking
to make a meaningful, positive impact on your portfolio.
Do your homework!. You must re-evaluate your trade on an on-going basis. If your
risk tolerance is low, it's time to move on to another stock, hobby or profession.
Sometimes you have to be patient with your penny stock trade. Companies that are
not well known can take a while for investors to start noticing them. But when the
big boys start buying, be prepared to go along for a frenzied ride.
Know your risk tolerance first. Investors should educate themselves fully before
making a purchase of any stock - especially penny stocks. Know how much risk you
are willing and able to take. This means taking a look at how much money you can
afford to lose.
Penny stock investing can be very profitable indeed. Install some stop-loss tactics
and have fun.
Happy trading everyone!
Penny Stock Rumble
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