Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

What You Need To Know When Buying Penny Stocks?

2 min read

 

Penny stocks are securities or stocks which are sold by smaller new companies. They are generally sold because companies are seeking money for expansion, basic operations, and even for commencement of business. This article includes:

  • Know in depth on penny stocks
  • How a dishonest penny brokerage firm can cause trouble to you?
  • Why shouldn't penny stocks occupy a major share in your portfolio?
Penny stocks are securities or stocks which are sold by smaller new companies. They are generally sold because companies are seeking money for expansion, basic operations, and even for commencement of business. Penny stocks get their name because they retail for so little often less than five dollars, and sometimes for just a fraction of a cent. You can easily get a list of penny stocks from brokers who specialize in this type of stock and penny stocks lists are now very popular online and to subscription services.
The problem is that penny stocks are extremely risky. In fact, some larger investment firms refuse to deal with penny stocks at all. This is because according to some statistics up to 70% of investors end up losing money on penny stocks. When you buy the stocks, chances are excellent that you will never see the stocks or your initial money again. Added to this problem, a number of penny stockbrokers have been accused of fraudulent and dishonest business practices which have further separated investors from their hard-earned money. This does not mean that you should never invest in penny stocks. The fact is that it is possible to make an incredible profit through this type of stock. Some stocks retail for less than a penny initially but end up costing several dollars, resulting in incredible profit. The problem is that this is a rare occurrence. On the plus side, buying penny stocks is cheap and you only need a few winning stocks to make considerable money.

What You Need To Know When Buying Penny Stocks

Experts suggest that investors interested in buying penny stocks orient themselves as much as possible at this type of stock. Experts also suggest that investors should:

Research Any Brokerage Firms Specializing In Penny Stocks Carefully

If the company uses hard sell techniques, promises you insider information, or makes unreasonable claims about penny stocks, walk away. A reputable broker will admit that most investors will lose money with penny stocks. Anyone who promotes penny stocks as a sure bet to or an unrealistic and tempting scheme is not being honest with you. Make sure that you also investigate whether a brokerage firm had any complaints against it. Currently, several such firms are facing serious legal problems from disgruntled past customers.

Research Any Companies are Considering Buying Pot Penny Stocks From Carefully

Only buy penny stocks from a company that has very experienced and proven business people at the helm, does business in the market that is currently booming, sells excellent and unpatented products or services, has an excellent business model, and seems to have a real chance of success. You should only invest in a company that honestly has all these features.

Be Aware That Brokers and Brokerage Firms Often Artificially Increase Prices of Penny Stocks

They may start selling large amounts of stocks that they have bought in order to create a false sense of demand. Once they have sold their stocks, the price of the penny stocks will drop dramatically, making your initial investment almost worthless.

Don't Make Penny Stocks Your Main Portfolio

Experts suggest that penny stocks take up 5% to 10% at an absolute maximum of your overall investment portfolio. You should be prepared to lose any money that you invest in penny stocks and should never borrow to invest in these highly volatile securities.

How This Penny Stocks Are Beneficial To Buyers

Penny stocks are very attractive to investors because they are so inexpensive. For a thousand rupees, you can buy literally thousands of stocks. There's also a very small chance that a company that you are investing in will suddenly experience tremendous profits. While this is rare, just one or two such incidents can build you a nice profit. There are investors who have made literally tens of thousands of rupees from penny stocks within a short period of time.

 

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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