Penny Shares are generally stocks and shares which have a low value (very often literally pennies), but which have the possible ability to increase in value. In the USA it is more usual to use the term “penny stocks”. It is the same thing by a different name. The term “penny share” is a very loose term and there is no set criteria as to what are penny stocks and shares and which are not. Brokers will often refer to stocks or shares as “penny stocks” when the upper price of shares is $5 or £3, but among investors, the term usually applies to common stock of small public companies priced at under $1 in the USA and £1 in the UK.
These stocks can jump 100% or 200% in a day. You need a little luck, but most of it is knowing what to look for. And you have to know how to go about managing the risks. We asked some of the hottest players in the game what they would recommend a newbie to do. Here is a selection of their answers: ”You need to seek out penny shares in companies that are moving towards profitability. That involves doing your research. Lots of research.” – Andy, London EC3 “Be wary of companies with too much debt.
That, to me, is the biggest indicator that their shares are not going to be worth trading in.” – Camilla, Manchester, UK “Do not, under any circumstances, spend more money than you can safely afford to lose. The big danger with penny stocks is getting greedy. Greedy people seldom win.” – Carter, New York, NY, USA
Why Do Penny Shares Exist?
Penny shares exist because some businesses go public before they generate a large profit, or have become known. These companies generally go public early so they can use the investor money to finance their growth. The money these companies get from investors is used to market and grow the companies pass their local markets to make them global companies. Because they and their dealings are largely unknown, it means that they stocks are basically valued at a very small amount – often in the pennies, or even less. The other kind of penny share companies are those that have been trading for a long time but have fallen on hard times. These are often my favorite type of penny shares. Just make sure that the business the company is in is viable. The reason some mature companies have worthless shares is because what they sell is outdated – such as candles, fax machine ribbons and so on.
There is no way they will see a sudden revival (unless they drastically change their business) and so should be avoided for our purposes. The point of trading in stocks or shares of these “penny companies” is that a lot of them have very little history and very little in the way of assets. “But how can this be good?” I hear you cry. The simple answer is that these companies are either very new or, more likely, have suffered a fall from grace.
That means that there’s a possibility the price will rise. If you think of it as playing a ‘slot machine’ you won’t go far wrong. And the stakes are often the same. We would recommend that you do not dabble in penny shares unless you can afford to lose the money you are putting in. Great returns are certainly possible, but at the same time the risks are enormous. Most serious players of the penny stocks market are in it for the “rush”. With the normal stock market it is possible to make gains of 300-400%, but this will typically take years and it’ll be like watching a snail race. But with penny shares you can make 400% returns in a couple of hours – and lose the lot just as quickly.
How Do You Go About Trading In Penny Shares?
You will need a broker account. There are two ways to do this: online and on the telephone. For penny shares, you really need to get yourself an online trading account. This will be funded from your bank balance and so it is important that you have sufficient funds at your disposal in order to trade and continue trading. It is important that you get the best account for your purposes. The traditional brokerage account will charge quite a few bucks (or pounds) for every transaction you make. Anything from £18 to($25) £50 ($75) is typical. A new breed of online brokers, offering a straightforward service with no embellishments, are maybe what you need. Most brokers charge a monthly or quarterly fee and will insist on your keeping a minimum balance in your account. You should not be too stingy when looking for a broker and you should be prepared to pay for the type of service you want. There are online brokers who charge as little as $5 a transaction, but often you will find that there are enough extras to push the price much higher. On top of that, you may want some of the extras your money will get you, such as research facilities and fail safe devices.
The Benefits of Buying Low Priced Penny Shares
The profit potential available in knowing the good penny shares to buy is much higher than what it is in shares that sell in the upper price ranges. The low price these shares have makes it possible for them to double and triple in value overnight, and if a small company offering penny shares grows into a large company, the return on investment provided by the companies will easily be in the thousands. The great thing about penny shares is that people can buy lots of them without having to spend a lot of money, and they can make big profits from their small investments.
Be Careful Not To Spend Too Much Money
The price of shares selling for pennies makes people want to gobble them up because of the possible amounts of money they can make. No matter how low in price these shares are, if an investor spends more money than they can afford to lose, they will be in financial trouble if their investment does not turn out well. The great profit potential of these shares also comes with great potential to totally lose an investment. Never invest more than you can safely afford to lose.
Only Invest In Good Penny Stock Companies
When an investor is making an investment, it is never a good idea to leave profit potential up to chance. If an investor wants to make serious money trading shares selling for pennies, they still have to conduct proper research on the companies they want to invest in. This means they have to know how good a company’s finances, management and growth potential is before they make an investment. This is called due diligence and every investor must do extensive research of this kind before spending a penny on any shares.
Do Not Until The Penny Stock Prices Begin To Fall To Sell
If an investor picks a good penny share company, they should always be ready to sell it if the company is rising in value too fast. Speed is often of the essence and how fast you act can determine how much money you will make overall investing in penny shares. For this reason, we recommend you register with an online brokerage company rather than trying to do everything by telephone. If a company’s value is rapidly increasing based solely on speculation, it is primed to fall in value in the future. If investors can recognize when they should buy and sell penny shares, they will make good profits. That really is the essence of how to make money from penny stocks and shares.