Trading Penny Stocks – The Highs and Low

Many traders opt for trading penny stocks to expand their portfolio as part of their overall diversification strategy, but it’s important to understand that investing in these stocks can also be a double-edged sword.

The ease of trading penny stocks is facilitated by the fact that they are less than a dollar. These stocks are not traded at the major stock exchanges, like the NYSE or the NASDAQ.

Many investors have seen lucrative gains off penny stocks, yet there are still some who don’t place much faith in this type of investment. Anyone entering the penny stocks market should be aware of the benefits and losses they can incur in this process.

Advantages of Trading Penny Stocks

Inexpensive to Buy

There are many amateur investors who find trading penny stocks to be quite appealing. This is because of the obvious fact that these stocks are sold at a minimal price.

Therefore, amateurs have a way to invest in the market without facing too much uncertainty or risk because of the amount of money invested is low.

This makes it apparent that if the value of the stock falls, the investor will bare minimum losses.

Easier to Purchase

The way you buy penny stocks is relatively easier than buying conventional stocks. They are bought in the form of common shares, therefore they are easily accessible by the general public. A vast majority of stock exchanges carry penny stocks.

High Potential for Profit

Penny stocks can yield lucrative gains for investors. In several cases, penny stocks can double or even triple in value within a relatively short period of time. Traditional stocks generally take more time to gain value compared to penny stocks.

If invested in wisely, trading penny stocks can be highly profitable as a stock investment option. Investors should look out for newly established companies because their stocks are cheaper to purchase and the potential for growth is very high.

Diversify Your Investments

Any trader is likely to find several profitable opportunities in this market. You can increase your chances of making profits by diversifying your investments. This means that you should purchase several stocks rather than putting all your money in one stock. Every investor should know the adverse risks of putting all their eggs in one basket.

Disadvantages of Trading Penny Stocks

 Lack of Regulation

Since companies that offer penny stocks are not governed by the Securities and Exchange Commission, they do not have an extensive business history. Due to the lack of regulation by the SEC, it is not mandatory for these businesses to have audits and send reports of their assets and other vital financial data.

This creates information asymmetry among investors because they are not fully aware of what they are purchasing.

Adverse Selection

Trading penny stocks can sometimes cause adverse selection because it is very difficult for the investor be completely confident in the longevity of the company. Therefore, as is the case with most investments, there is an inherent risk that the investor faces in terms of profitability. In rare cases, traders get scammed by fake companies.

Cheaper is not Always Better

It is not always a positive aspect that a low investment is a good investment. Since penny stocks are so low in price, this often indicates that the company offering the stocks is going through financial trouble and may even be going bankrupt. However, most investors do hope that the company is eventually able to get back up on its feet and consequentially, cause an increase in the value of the stock. This can be a difficult task for even the most seasoned traders.

Word of mouth is not necessarily a credible source for the confirmation of a good stock. There are some penny stock “experts” that are hired by companies to give positive reviews about their stocks. This can end up as another form of information asymmetry because the buyer is not aware of the credibility of his investment.

Therefore, any investor interested in trading penny stocks should closely analyse these stocks in order to see where the most lucrative gains can be made.

How to Become a Stockbroker – The Things You Need to Know

  How To Become A Stockbroker on Wall Street

Do you want to work in a comfortable office and talk to people about money wearing nothing but a suit and tie? Interact with clients and sometimes go with them on weekend trips?

Then, probably being a stockbroker would be the best job for you. I will give you tips for you to achieve your dream of how to become a stockbroker and pass the Series 7 exam also known as the General Securities Representative and Series 63 or Series 66 exam.

How To Become A Stockbroker Tips

1) Get a degree related to business, finance, or economics. As early as high school, one needs to prepare for what career he or she will undertake. So, it is better to take up electives related to math and economics. A college degree is not entirely a prerequisite to become a stockbroker; however the information you have gained from college would further move forward your career. Plus, a degree would take aback possible and future employers.

2) Join clubs related to investment. Here you would learn to analyze the different trends in the economy as well as invest in funds.

3) Read and subscribe to magazines. You would also learn from publications which are focused on money and the economy. Read publications such as Smart Money, Fortune Magazine, Wall street Journal, and the business section of the different newspapers this will help you on how to become a stockbroker.

4) Benefit from on-the Job Training. One of the top answers to the question how to become a stockbroker is through training, as this required. There are reputable companies with brokers who have trainees working as their assistants. These training, regularly four to six months, would help you gain knowledge and prepare for the coming licensure exams. Often when the trainee passes the licensure exams, he becomes a regular employee of the stockbrokerage firm.

5) Pass the licensure exams. There is an exam administered by the National Association of Securities Dealers. You want to know how to become a stockbroker, and then you have to pass the General Securities Registered Representative Examination (Series 7). Depending on the state where you would want to work, passing the Uniform Securities Agents State Law Examination (Series 63) or the Uniform Investment Advisor Law Exam (Series 65) is also a requirement on how to become a stockbroker. The license is needed to allow you to earn your commission. The passing rate is 70 percent. The state with the most stockbrokers is New York, while the best state to work is in Connecticut.

6) Get ready for the real world. After passing the exams, one should not take it easy and expect a gruelling work place as some firms tend to hire many fresh graduates as they anticipate that most of these would not perform well and would wash out before they become regular employees. Lay emphasis on you work experience and studies in finance and economics. Be professional especially during the interview and when dealing with clients.

Investing in Penny Stocks for Beginners

      Are Penny Stocks a Good Investment?

You aren’t the only one who has been tempted by the apparently lucrative gains from investing in penny stocks.

Penny stocks are turning out to be quite successful in the investing world.

These particular stocks can be profitable to many investors, yet there still are a lot of dangers and risks associated with buying penny stocks.

These negative elements often go unnoticed when an amateur investor starts off their new endeavor. If you are willing to put in the time and effort required to make profitable gains from penny stocks, then it can be worth it for you. But if you don’t, it is wiser to step away from trading penny stocks.

Perfect Your Money Management Skills

The first step when investing in penny stocks is to choose a broker. However, that doesn’t mean you don’t require highly disciplined money management skills. Don’t expect to invest in penny stocks with a nonchalant attitude like you would in your 401k with risk free mutual funds.

The unpredictability and bankruptcy levels of certain penny stocks are high so it is important for an investor to be wary.

Avoid Putting All Your Eggs In One Basket

Placing all your investments in one stock puts you at a higher risk of losing it all. Don’t risk more than 2% of your money when investing in penny stocks. Be ready to do some hard work when you buy penny stocks.

You have to be able to follow up to at least 20 stocks at one time in order to plan your current and future trade. If you lack the educational background, don’t be shy to read up on important definitions and statistical data so you can ascertain the risk on any specific trade.

Understand The Psyche Of Investors

Another vital factor is to understand the average trader’s psyche. Marketing is often used in penny stocks to manipulate the prices of stocks within a short span of time. Larger companies that have a strong financial background often invest heavily in marketing campaigns to make their stock seem more lucrative than it really is.

However, large companies usually do yield considerable profits, but it is important for you as an investor to evaluate your investment. It is usually wise to follow current stock market trends to see where investors are heading, and eventually follow them.

Investing In Penny Stocks – Gathering Info

Although the gathering of information has already been brought up in this article previously, it needs a heading of its own for investors to realize its importance. Investing in penny stocks requires the collection of adequate information before trading. Usually, stock brokers have all the necessary information and you can even use famous websites to find out which penny stocks are hot.

The problem with penny stocks is that there is no regulatory body that governs the information for the company. Investors often fall prey to scams such as fake press releases and fake websites. This is why it’s essential to really “dig in” when you are investing in penny stocks. Once you master the art of differentiating real from fake, you will be on your way to earning higher profits in the penny stock market.

So if you’ve been thinking of putting down some money to invest in penny stocks, it can work out well only if you follow the previously mentioned tips. There are very few success stories in the penny stock market in which investors were able to earn millions of dollars without putting in hard work.

Just as the case is with any other investment opportunity, there is always an element of risk involved. Since penny stocks are so cheap, many investors jump in to take advantage of the market. However, a vast majority of them fail in achieving success because they fail to follow the most basic guidelines for investing in penny stocks.

Happy Trading!

Can You Make Money Short Selling Penny Stocks?

Can You Short Sell Penny Stocks?

Yes you are allowed to short sell penny stocks. In theory short selling penny stocks would seem like a an excellent  trading strategy since every single  pump and dump will eventually fall dramatically in share price and will have a hard time staying afloat. There are many reasons why short selling penny stocks is not a long term strategy and isn’t suited for the majority of traders. When short selling penny stocks there is a number of factors that you should take into consideration.

1. Borrowing Shares is Becoming Increasingly Difficult

Trying to locate shares to short of penny stocks can be really difficult  and time consuming. The margin rate is very high when you try to hold these stocks in the long term. Shorting will require you to open multiple brokerage accounts in order to find the best borrows. There is no single brokerage firm that will allow you to short sell every penny stock. If you setup accounts with about 4 brokers this will allow you to short sell roughly 70-80% of the majority of low priced penny stocks. But remember each broker has different account minimums so short selling is not ideal for people with small account sizes. Some of the best brokers for short selling penny stocks are Interactive Brokers, Speedtrader, TradeStation and Suretrader. Also brokers don’t like the concept of short selling micro caps because it is extremely risky due to potential short squeezes.

2. A Margin Trading Account is needed

In order to short sell penny stocks you have to trade with margin, which on the other hand is not required when buying penny stocks. Whether you like it or not, when trading with margin you are borrowing money from your stock broker. Many traders don’t feel comfortable borrowing from there broker. Also more capital is required to open a margin account than a cash account. If are required to put up 50% of the total position size dollar amount that you want to short sell, as collateral. This is known as initial margin. If the stock you short increases in price then your margin levels will fall. When your margin levels fall below 30% your broker will have no choice but to issue a margin call. This  forces you to deposit more money into your account until your margin level is brought back up to 50%. If you don’t do this your position will be liquidated immediately. Penny stocks have the ability to increase by 100′s of % in short spaces of time, for weeks or days depending on how long the stock promotion will last. This could cost you thousands of dollars in losses. The most frustrating thing is the share price of these frauds will be down 99% within in a couple of months.

3.Short Squeezes

When you short shares you are borrowing shares from someone who has a position in the company. The original owner of the penny stock, may ask for their shares back at anytime. This is can cause what is known as a ”buy in” and can usually happen after a few days or 14 days. A broker may issue a ”buy in” if you are in a losing position on one of your short sells. You essentially have little or no control of what happens, causing you to lose on the trade as the broker will buy back the shares at current market price. “Buy ins” cause short squeezes more than likely increase the share price artificially as traders are being forced to cover there shorts at around the same price levels.

My Conclusion

Short selling penny stocks in my opinion is not a viable long term strategy. Multiple penny stock brokers are required, potential short squeezes, competition is increasing because more people are trading penny stocks and shares are becoming more difficult to borrow, penny stocks are too volatile  and not cutting losses short is a recipe for failure.If you are interested in learning to short sell mirco cap stocks I would advise you to check out TimothySykes.com. My advice is to stay away from short selling low priced shares, as the oods of success and increasing competition put you at a great disadvantage.

When is the Right Time to Sell a Penny Stock?

                                             When Should You to Sell a Penny Stock?

Knowing when to sell a penny stock is an overlooked aspect of trading. The decision to sell a penny stock has a big impact on whether you profit or lose from a trade. Selling too early can be the worst feeling in the world, watching your stock  climb higher and higher, thinking too yourself if I only had the balls to hold on longer I would be alot more wealthier. Don’t sell all your shares at once, sell over a period over a couple of days or months scale out of your position if you are happy enough with your profits.

Before you make the final decision to sell, a number of factors must be considered. In my opinion the best way to sell is by scaling out of your position over time. By doing so, I find that it helps reduce my stress levels. For example if you own $20,000 worth of stock and it goes up over 50-100%, it would be wise to sell half or maybe three quarters of your shares and let the rest ride. If share price continues to spike higher you will have captured not all but some of the upside gains and will feel alot less guilty then if you had sold all of your shares at once.

On the other hand being greedy and not taking a decent profit when it was available, kicking yourself that you didn’t cash out when you had the chance. Consider these indicators when deciding to sell or hold onto a stock:

• How high is your risk tolerance  - Can you handle much pain.
• Is there better investment opportunity elsewhere.
• Risk to reward ratio.
• You may need the money for something else.

1. Technical Trends of a stock

Current Trend

Is the stock price in an upward, downward or sideways trend? An uptrend means that a company has 2 or 3 up days for every down day. This would mean the price would move higher month after month. Some trends can last months maybe days. By buying in early into a decent upward trend, you could profit significantly. To eliminate risk only invest until it is clear the stock has begun a new uptrend. Once the trend is over its time to exit your position.

Trend Reversal

Once a stocks uptrend or downtrend is over is can start to trade erratically, given you less of a chance of profiting from future price movements. Its common for a trend to reverse. Learning to find trend reversals can be extremely profitable. To help to spot a tend reversal before the crowd look out for the momentum and trading activity of the stock. The most important trend reversal patterns are the topping out and bottoming out patterns.

Support Levels

Support and Resistance levels tend to hold at round numbers like $1.00, $1.50, $2.00. This is a tip I learned from legendary investor Jesse Livermore. This tends to happen because investors tell their brokers to buy or sell at nice round numbers. Volume tends to increase when share prices approach support levels. Buying pressure increases at these levels and will potientially keep the price over support. Also support levels can fail, which can take out stop losses causing a sharp stock decline. Several support levels may exist for a single stock, but each support levels can be weak, strong or moderate. Generally when a stock falls below support, it can become resistance.

Resistance Levels

These are caused by an increase in selling activity at aa particular price, making it harder for it to rise above a certain level. Resistance levels can be a great place to take profits.

2. The Reason Why You Bought The Stocks

Does the reason why you bought the shares still apply? Has the companies prospects improved? If the companies growth is too slow, its profit margin is decreasing/ debt is increasing or its not executing its business model to your model, it may be time to sell.

3. Volume of shares traded (Trading Activity)

Increases in trading activity is usually positive for penny stocks, unless there is a major sell off. High trading activity could mean the penny stock is getting alot of exposure. If volume of shares traded is decreasing or non-existent, this would be cause for concern and you may have difficulty selling your shares.Judging whether a stock has high or low trading activity comes down historical averages.