Beginners Guide To Trading Penny Stocks

By: Erica Polaris

The attractiveness of trading in stocks and playing the game of risk against profit has been made much easier since the early days of the Internet. Most people are aware of the risks of trading in stocks and shares, and experienced investors generally know that you gamble only with money that you can afford to lose in the first place.
But the thrill of undertaking online stock trading, where you can follow closely the movement of your investments, still offers the thrill of a risk factor that attracts so many people.
What if you don't have the resources to truly gamble with? What if you don't have resources that you can truly afford to lose should the worst case scenario hit and you lose everything? Well, there is an alternative to playing with life-changing amounts of money. Penny stocks investing.
There are some important factors to consider when learning about trading penny stocks. The first step is learning more about what these penny stocks actually are. Generally the term penny stocks refers to stock trading at below $5 per share, some would say that $2 would be a better benchmark. But these are the type of stocks that you will only find being handled outside of the main world exchanges, with the nature of these penny stocks being very volatile and unstable.
Making predictions at what these stocks will do is an arduous task, what with the amount of information about these particular companies being sparse at best. But what makes investing in penny stocks attractive is the lure and temptation to trade at relatively low risk, at nothing more than perhaps a few cents per share. It is not hard to be convinced that by buying thousands of shares for pennies you are making a good investment with very minimal risk. Reality suggests otherwise, and as with any financial transaction, there is a reason things are so cheap. With regards to wanting to buy penny stocks and how to trade penny stocks, the trader needs to be aware that these low priced shares are priced as such because they are really not worth all that much. The chances of turning a huge profit is not ever as cheap or simple as what the people trying to sell them to you may suggest. You should always be careful when offered sure-fire hits from potential sharks.
Learning how to trade penny stocks can be lucrative, and it is possible to acquire good profits when looking for quick returns. But, like regular stock trading, mistakes can quickly lead to losses. Devastating losses if your initial investment has come from funds that are not discretionary. On the flip side there is potential to make $100's during one single day trading penny stocks, but any investment is subject to the same element of risk. Market strategies, preparation and continuing to track your investment are paramount to controlling your investment. What if you see stock prices falling before your very eyes. Do you sell, or hope for recovery? Will you even be there ready to respond to the decline?
Bear in mind that when you buy penny stocks, the value of individual stocks will not appreciate during one day, and if you do not own a diversified package of stocks then your hands will be tied. Herein is where research and penny stock tips can help you. Is it better to invest all your resources in one lucrative basket and hope for the best, or divide your investment at minimal returns even if the prices sky rocket?
Now with online stock trading being available to the general public, you can place orders online with your broker who will then execute your trades for a commission. There is quite a lot of competition out there between brokers willing to take on your investments, so you should shop around and research the market thoroughly to learn as much as you can. There are a number of helpful websites out there to assist you as you try and make those pennies grow.

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Erica Polaris is a prolific researcher and writer of stock trading and investment related articles. She shares her research on how to trade penny stocks at her investment site that includes essential news and reviews.

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