If you’re thinking of investing in stocks, be advised: ou should save up a fair bit of money first.
Financial advisors recommend saving up at least $500–on top of your emergency fund–before trading stocks.
If you haven’t hit those saving goals yet, trading penny stocks can offer a low-cost way to start building your investment portfolio.
Don’t go into the penny stock market blind. Keep reading for our top penny stock tips.
Here Are Our Top Penny Stock Tips
According to the U.S. Securities and Exchange Commission (SEC), a penny stock trades for less than $5 per share.
Because they’re so inexpensive, many investors see them as a way to get into the stock market without much starting capital.
There are, however, some important things to remember before you start buying up penny stocks.
Ready to plan your investment strategy? Here are our best penny stock tips to help.
Know Where to Look
Penny stocks trade “over-the-counter,” meaning you won’t find them on a centralized exchange like the NYSE or NASDAQ.
Instead, you’ll need to look for stocks on the OTCBB or on the “pink sheets.”
It’s important to note, OTCBB and pink sheet stocks don’t have to maintain the same standards exchange stocks do. That’s just one reason why they’re a risky investment.
Get Comfortable With Risk
Trading penny stocks can be risky. In addition to the less stringent trading standards that come with OTC stocks, penny stocks present several other risks to new investors.
Lack of Company Information
Companies offering penny stocks are often new to the market. They either don’t offer information about their business to the public, or they haven’t aggregated information yet.
That means you could be relying on some guesswork when you’re choosing which stocks to buy.
Penny stocks have low liquidity, meaning they’re usually slow to sell on the market. That means you could buy up a lot of stock and end up sitting on it for years before you find a buyer.
Target for Scams
Penny stocks are a prime target for scams. It’s essential you do your homework before investing.
Traders can artificially inflate their worth by purchasing a large amount of stock, talking it up to their friends and colleagues, then immediately selling once other investors jump on board. This is known as the pump and dump.
Some penny stock companies also “buy” biased reviews across the media. Many also work with offshore brokers to try to circumvent SEC stock registration laws.
Find a Penny Stock Broker
If you’re new to the world of investing, a broker can help you choose penny stocks. Their insider knowledge can be an invaluable asset as you build your portfolio.
A qualified broker can help you mitigate your risks as much as possible. They can also protect you from scams.
Most importantly, they can help you react to stock changes quickly so you can protect your investment.
Find a Penny Stock Broker with Our Help
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