Succeeding As A Penny Stock Trader Requires Knowing Risks And Steering Clear Of Them
The reason why a penny stock trader hopes that his investment in penny stocks will pay rich dividends is because at the back of his mind he is hoping against hope that the next time he invests in penny stocks, one or more of them could turn out to be the next Microsoft or Google. However, even the most optimistic of penny stock trader will readily acknowledge that the chances of such a breakthrough happening are indeed very remote.
Clear Misconceptions
That is not to deny that many penny stock companies have a lot of potential in them, but if you are like most other penny stock traders, you may also be under the misconception that big companies such as Google and Microsoft began as penny stock companies, because the truth of the matter is that they in fact began trading at about twenty-five to thirty dollars a share.
Nevertheless, as a penny stock trader, you first of all need to understand the true meaning of penny stocks which according the definition given by the Securities & Exchange Commission or the SEC, refers to those stocks with less than five dollar share value or even stocks with less than three dollars share value. In fact, some people even consider penny stocks to be those stocks that trade at less than a dollar or which refers to stock trading on Pink Sheets or even OTCBB.
Also, as a penny stock trader you must be sure about the risks associated with penny stocks because the fact of the matter is that they carry with them huge risks, though at the same time, if their value increases by a few cents, you could well triple your investment. Thus, you should know the level of your risk tolerance before becoming a penny stock trader because the risks are many and worth steering clear of.
For example, there is lack of information given to the public and so you may not find adequate amount of company history to help you make a studied decision. In addition, there is also no real trading history regarding various penny stocks to help you pick the right stock and in addition, there is also lack of proper liquidity in penny stocks. What's more, you may even fall prey to biased recommendations and thus make a wrong investment that can cost you much, if not all of your investment.
If you are a penny stock trader and you become aware of the associated risks of investing in penny stocks, you can then hope to steer clear of the risks while hoping to cash in on the many benefits that too are associated with investing in penny stocks. If you, as a penny stock trader can choose the penny stocks well and have analyzed their profitability, you can even become filthy rich in just a matter of a few minutes after the market opens.
