There is always a lot of opinions when it comes to trading penny stocks, which are defined by the SEC as any security that is priced lower than $5. Some investors think that trading penny stocks is the only way to realize real wealth in the stock market, while others shy away from penny stocks due to their high volatility, and potentially large losses.
This article is aimed at looking at the real truth about penny stock investing. Penny stocks are suitable investments for experienced traders who are looking to earn a high returns in a relatively short amount of time with the understanding that a very high level of risk is also being undertaken.
Unlike the comparatively stable blue chip stocks, which tend to remain fairly consistant over the long term, and rarely fall to zero, many penny stocks end up worthless or close to worthless. However, some penny stocks do perform very well. While some penny stocks do crash and burn, gains in excess of 100% over the course of a year can be quite common amongst the successful penny stocks. The key is knowing where to look for these successful penny stocks, and having an exit strategy in place prior to committing any capital.
A look at a successful Penny Stock in 2009
Let us take a look at a company called Sirius XM Radio Inc. As their name suggests they are a satellite radio provider, which is located in the United States.
So as you can see, if you pick the right stocks, they can grow hugely, even in a recession.
Is a Penny Stock Investment gambling?
In my view the answer is, “it can be”. I will explain this further. If you don’t really put any effort in to researching a stock, or just pick a stock at random, then yes, you would probably have better odds at your local casino playing roulette than you would trading penny stocks.
However, if you do your research, either through technical analysis or fundamental analysis you then have the opportunity to put the odds in your favor. In this instance, I personally view penny stocks as a high risk investment and not gambling. Of course, you are free to disagree.
Where to find penny stocks to invest in
The best way to find penny stocks to invest in is to use a stock screener. There are many free stock screeners out there. My favorite free screener is the one from google.
If you click on this link, it *should* automatically take you to there with everything already set up to view penny stocks.
However, if it doesn’t, it’s very easy to do manually. You just need to select the “Add Criteria” link, then select “last price”. The Last price option will then appear you need to select “0” as the minimum and “5” as the maximum. That will list all the penny stocks priced under $5.
Penny Stock Broker
When penny stock investing it’s very important to have a good broker that offers low fees and commissions on trades, as trading penny stocks often involves making frequent trades and high fees can quickly eat away at your capital. The best broker I have found for penny stocks is definitely Zecco. If you would like to look at brokers in more detail, be sure to check out the Penny Stock Brokers page.