Penny stocks are great for beginner investors. Judging by the name, penny stocks are the companies that offer a low share price, usually less than a penny or a dollar.
Why Penny Stocks?
For beginners, this represents a go-to option and as the investors, they can hold thousands of shares for a small invested capital. But, these shares are often risky and they lack liquidity, market capitalization, and have large bid-ask spreads.
Which Stocks to Trade?
Before starting to trade penny stocks, you can use stock screening tools. Basically, these tools will search for stocks with a price tag of $1 or below. Using this method, you can easily narrow down potential options for investment, depending on your budget and risk strategy. Once you start narrowing down the stocks, you should get a distinct table with the names of the company on the left side. On the right, the app will show you which sector they belong to.
For example, apparel stores. And at the far right, we have the price. Here, you can purchase any stock you want.
Setting Up the Account
Opening an account takes some time if you want to do it the proper way. You should look for the ease of fund transfers, great customer service, and low fees. The fee structure is also very important for penny stock investors. Choose the right broker that offers a low flat rate per trade, which will have a less impact on the final return.
It’s Risky Business!
Understand this. Penny stocks are VERY risky and you should never invest in them if you aren’t ready to grasp that. The main concern is liquidity. For example, retail investors can get stuck in the same position for weeks if there’s a lack of supply or demand. With this, the price fluctuations can be serious. Not to forget that traders can manipulate these stocks, to make them appear strong or weak.