Penny stocks are the last option for people that can’t afford to invest in shares. This is because majority of them can be bought for less than $5. Some are even traded for less than a dollar. As a matter of fact, investing in penny stocks is a very lucrative venture. A small investment can earn you huge returns when the value of the stock rises. However, most investors lose money because they don’t understand the dynamics of penny stocks. Here is a list of principles to follow when getting your feet wet in the world of penny stocks.
- Practice by Paper Trading
Most people rush into buying penny stocks just because they have read success stories other investors. They imagine that they can simply make a fortune for themselves in a few days. Contrary to their expectations, they lose a lot of money. Research actually shows that 95 % of first time investors are on the losing end. The surest way of avoiding joining such a league is to first invest in education. This is done by paper trading with virtual money. When you paper trade, you will be able to understand how penny stocks are traded. The good thing is that you will not lose anything when you paper trade. After practicing for three months, you will be able to make informed decisions with real money. For more insights on trading in penny stocks, you can visit an authoritative site such as https://www.crediful.com/penny-stock-trading/.
- Buy Different Penny Stocks
Although investing in penny stocks is considered lucrative, it comes with an equal measure of risks. For a start, the value of a penny stock tends to fluctuate in unpredictable manner. You might buy a penny stock and anticipate that it will rise only for its price to drop like a rock due to issues such as manipulation and bankruptcy. Your best bet would be to invest in different companies so that you can easily recover from losses. This decision is based on the fact that some stocks decline while others continue to rise steadily.
- Consult an Experienced Investor
As a beginning trader, you might make a lot of mistakes when learning the ropes. In fact, most amateur traders lose hope after losing lots of cash. An experienced investor can help you have a short learning curve. This is because he will train you on how to protect your bankroll when trading. Even if such an investor charges a small fee, it’s still worth banking on his insights than go solo and lose all your money. When you consult such an investor, he will guide you in selecting the best penny stock broker and show you how to detect fake news.
- Never More than you can Afford to Loose
By the rule of thumb, you should only invest money that you don’t need in the near future. This means that it’s not advisable to trade with money that you have saved for your children’s school fees, house rent or borrowed money. In case you are not away, it’s possible to lose all the money you have invested. Since there are stocks that can be bought for as little as $0.30, you should start with a small amount of money and scale up later after gaining experience.