How to Invest in Penny Stocks or Nano-Stocks
Penny stocks are a type of stock that can be very dangerous if you don’t know what you’re doing. They can be a great way to add some money to your portfolio, but if you are not careful they can tank your entire financial future.
This guide will teach you about penny stocks and how to invest in them safely. However, penny stocks should never comprise a significant portion of your portfolio. Many successful investors build their wealth without any penny stocks at all. If you are interested in this type of investment, be sure to do your research first.
What Are Penny Stocks?
Penny stocks are cheap shares of small companies that usually trade below a dollar or less per share. They are often called micro-cap stocks, nanocap stocks, or small-caps. The SEC recently changed the official definition of penny stocks to anything trading below five dollars, but most penny stocks trade much lower than that.
The Pros and Cons of Penny Stocks
Penny stocks are shares of small- or medium-sized companies. These companies (with small market capitalization) tend to be traded less often than larger companies. Their prices move more quickly than those of large companies. Penny stocks are hard to predict because they behave so differently from other stocks.
Penny Stocks Pros:
Penny stocks often fluctuate by a few pennies each day. A 5 cent increase might not seem like a lot, but if the original price was also 5 cents then that’s a 200% increase in one day. Investors who can afford to take bigger risks may want to consider investing in penny stocks.
Penny stocks are usually low-priced companies that may offer high returns. However, these stocks often trade at very low prices, making them more volatile than other stocks. A penny stock can go up quickly, but it can also fall rapidly. This makes it difficult to predict whether a penny stock will continue to rise or decline.
Penny stocks are a dream come true for investors who want to make quick money. However, they are also a nightmare for those who buy them.
Penny Stocks Con:
Penny stocks can be volatile investments. Investors should avoid them because they can go up or down by a few pennies per share. An investor who puts a large amount into a company with a low price could lose everything if the stock goes down.
Penny stocks are risky investments. Small cap companies are more likely to go bankrupt than large ones. You should avoid them. Buy-and-hold is not a great investment strategy when dealing with penny stocks.
How to Pick Penny Stocks The Right Away
Penny stock trading is an easy way to invest in unusual companies. You should put some safeguards in place before you start trading penny stocks.
A Good Stock Screener Is A Must Have
You should use a stock screener to screen your stocks before investing. A stock screener sorts stocks based on certain criteria. For example, you could filter out stocks below $10 or above $100.
Some Free Stock Screening Tools and Software
How To Screen for Penny Stock Unique Characteristics
Penny stocks are shares of companies whose prices are low and whose market caps are smaller than 300 million dollars.