What are Penny Stocks?
The stock market is highly volatile. But this fact does not deter avid investors from buying shares at appropriate prices and selling them. Why do these investors do so and what is it that inspires them to undertake this risky game? There can be only one simple answer to both these questions and that is this market fascinates them.
There are some people who park their surplus funds in the stocks they choose and wait indefinitely for the values to increase to the levels they expect. These folks are long-term investors.
On the other hand, there are a few others who are interested in speculation and these people believe that they can make money by adopting this strategy. For these folks, penny stocks can be perfectly suitable. This does not mean that they should not invest in other stocks. But by investing in penny stocks when their value goes down and selling the stocks when their value goes up, they can make money. In order to understand as to how they should go about all this business, they should first know what penny stocks are.
The concept of Penny Stocks explained
Penny stocks are those the value of which is below one dollar. Since they come at such affordable prices, almost everyone can buy them. Very importantly, these stocks are highly speculative and hence, it is possible for those who decide to buy and sell them at appropriate moments to make money.
Is it worth taking the risks involved in penny stocks?
You may wonder if it is worth taking risks involved in doing share trading in penny stocks. Your concern may justifiably be due to the highly volatile nature of these stocks. The main risk is when you expect the value of these stocks to go up, it may go down. This may cause inexplicable stress to you. Are you ready to undergo such pressures? Are you mentally strong for bearing the onslaughts of such a volatile nature of these stocks?
Every person is different and so, attitudes also differ from one person to another. Some people may just brush the issues they face aside and move on. There is another group of people who cannot bear even the slightest changes in the outcomes they expect to have. So, whether you should do share market trading with thee stocks or not depends completely on how you view the unexpected reversals that are likely to happen in this game. Remember that these reversals are capable of making all your financial plans go awry. You are the best judge to decide this because it is after all your money you will be using to do this trading.
Tips to play safe and keep your losses under control
Despite the likely pressures and the chances of incurring losses, you may decide to do trading with these penny stocks. Experts have come out with a few tips that may help you in reducing the impact of losses in your tradings in these stocks. Let us find out what these tips are.
- Embrace the concept of stop-loss orders. By this, it is meant that you have to add what is known as the "trigger price" when you buy these stocks. In the event of the value of the stocks going down and when the value reaches the level of your trigger price, the stocks will automatically be sold. This means that by choosing the right trigger prices while buying, you can reduce the impact of the losses.
- The second tip is that you should not get over-ambitious. Greed is one strong power that can cripple the finances of stock-market investors and more particularly, those who trade in the highly volatile and speculative penny stocks. Simply put, you should know the levels of losses you can bear. To put it differently, you should ensure not to incur losses beyond what you can bear.
If you are ready to use these tips by letter and spirit, you can go ahead and do trading in these stocks.