The Essential Guide To Investing In Penny Stocks The Profitable Way

Investing in penny stocks is risky. If you do not have much spare money and are in a difficult financial position then you are better off putting your money into bonds and more established stocks as these investment vehicles are considered a safer option.

It is also best to avoid investing in penny stocks if you do not like taking large risks even if you have a lot of money to invest with.

The classification of small cap stocks is those companies that have a share price of less than $5.00 . Penny stocks can be a good way to start learning about the stock market although like any investment you should only invest the money you can afford to lose.

The first step after determining that you risk profile fits in with investing in small cap stocks you should begin by looking for suitable companies to purchase .You need to consider a number of different factors when thinking about which company to invest in.

You need to research the reputation of the company and its management, the past history of the company including company financials, profit and revenue streams.This type of research is referred to as fundamental analysis which is used to determine the intrinsic value of the company .

It is important to know that the actual trading price of the stock is a reflection of a combination of market factors at that time but through your research you should be able to work out what the fair value of the company is. By identifying companies that have a high intrinsic value and investing in them you can reduce the risk of losing your money.

You need to diversify into a number of companies and not just invest in one stock in order to minimise your risk as you can wind up losing your entire investment if things do not go according to plan .

To finish up investing in micro cap shares comes with substantial risks involved especially compared to other more conventional shares.

By conducting your research and not overexposing yourself to one stock you can minimise your risk and make a good profit from investing in small cap stocks.

Day trading refers to taking a position in a company and then leaving before the trading day has finished so as a result you end up holding stocks for a short length of time and generally never over night.

An investor on the other hand will wait out any short term price swings in the market and wait for the shares to appreciate in value over time.

As always there are both advantages and disadvantages for both strategies.

When looking at day trading micro cap shares these traders are looking to make a profit from the volatility of the share displayed throughout the day by entering and exiting positions often, and sometimes buy and leave a stock many times in the same day.

Therefore in order to make continual profits volatility is a must have requirement! It does not matter which way the general market is trending, you will always find small cap stocks that are highly volatile and moving in an upwards trend.

Although volatility is a great thing when day trading micro cap shares it does not come without its dangers because as quickly as a stock moves up, it can turn around even faster and you end up with a loss.

If you are new and make a lot of these mistakes early on and have too much of your money invested you can end up with losing all your money very quickly.To help stop this you should always proceed with caution and only ever trade with money that you can afford to lose.

You may have seen emails in your spam giving you tips on what penny shares to buy and you should never purchase these shares as you could become a victim of a scenario which is referred to as a 'pump and dump' which is when lots of investors rush in and buy these shares causing the price to spike then they exit just as quickly and the price crashes and you end up with a loss.

The worst case scenario is you are left holding stocks in a stock that is now worthless and this ties up all your money to invest in other stocks.

You should set aside the majority of your investment money when looking to day trade penny shares and invest it into more established shares or other more stable investment options and only trade with a small amount, especially if you are just starting out..How much that ends up being depends on how much money you can afford to lose.

In order to begin your day trading career you should set yourself up with an online brokerage account, preferably one that will give you live market feed (you may have to pay a subscription for this but the last thing you want to be doing is making decisions on data that is 20 minutes old!) You then place an order and once filled they will charge you a small brokerage fee.

Taking control of your money and investing in your financial future can be a frightening prospect but small cap shares can be a great way to start! But almost immediately you find yourself asking "how do I trade penny shares?"

Do not worry this article is designed to help you get started.

You can make a considerable profit with a little bit of skill and some luck thrown in for good measure without having to front up a large amount of money.

Although it is not easy to locate these penny stocks as they are not traded over the big stock exchanges such as the NYSE or the NASDAQ. When you have found a stock that you want to investigate further then it is best to check it out on both exchanges.

You should be able to do a Google search and find the websites

Brokers are also great because they will give you monthly updates on the state of your investments, however if you still want to trade micro cap stocks it is worth opening up an online account as well because there is often the need to act quickly.

When trading in penny shares you may find that you have to look a bit further to find what you are looking for - this is generally profitable stocks! But the rewards can definitely pay off as it is quite possible to turn a small amount of money into a significant profit, all part of the attraction of trading micro cap stocks .

An investor will generally hold onto a stock for an extended period of time and ride out the fluctuations in price over that time whilst a trader will hold onto a share for a short period of time and catch the upswing and sell before the price moves down.

Before commencing trading you should always perform the appropriate research about the company you are looking to trade.

Check out the financial history, profit and revenue streams as well as checking out the experience and history of management to ensure they have the appropriate expertise to say what they are going to do.

Finally once you have list of good stocks you are going to trade you should fashion a watch list which allows you to watch the behavior of the stock to give you some idea on the activity, because what is vital when trading penny stocks is volatility.

A company that has shares that are listed for sale at a price less than $5.00 per share is categorized as a micro cap stock and there are plenty of penny shares going cheap!

If you are ready to start playing the stock market then penny stocks can be a great starting place.

Small cap shares appear to be associated with a lot of hype because the attraction of investing a small amount of money and cashing out at a large profit is very addictive for some people.

But how many micro cap shares start off cheaply at say 10 cents and go to $5.00?

Although it is easier to own a shares in a company that can double i.e. go from 20 cents to 40 cents than it is for a stock that is $20.00 to double to $40.00 the cheaper entry price comes associated with higher risks.

Micro cap stocks are generally very illiquid which means their shares can often trade infrequently and they have in general less shareholders.

You could end up losing your entire investment as the low liquidity means that share prices can plunge rapidly.

You are much better off stopping right now and spending your time learning about other forms of investment if you are finding that investing in micro cap shares sounds too risky for you.

So if your risk profile is such that investing in small cap stocks will be an ideal investment then you need to know where to find them.

They are generally not traded on the more common exchanges such as the NYSE or the NASDAQ so you will need to look for them on over the counter exchanges such as the pink sheets or the OTCBB.

Although penny stocks are legal they carry a higher risk because the listed micro cap stocks are not regulated in the same way as more conventional companies.

You should always avoid the temptation to invest all your money into the one stock because the shares are so cheap, instead diversifying into many different shares in order to minimize your risk is a much safer way to go.

A small cap stock may be inexpensive to buy but that doesnt always mean that it will be an investment that will perform well. Due to the nature of penny stocks, investors can become a victim of fraud so it is crucial that you always check out the shares before you buy.

After you have found some companies you like the look of you can watch their progress for a while and then decide if you want to buy some shares in them.

Never just follow someone else's tip blindly, but investigate the company yourself and then watch the stock to see how it tracks before investing..

If you can set aside some time each week to improve your learning, you will greatly increase your chances of success in the small cap stock market.

By applying what you learn you can start with an initial small investment and then get bigger the more you know and start making money!

This is a quick step by step guide to walk you through the way to actually go about buying penny stocks..

Many years ago before everything became available online you had to go through a broker, who was a real person and they would work alongside you and give you advice about managing your investment portfolio.

Things have changed a great dealwith the introduction of the internet and investors can sign up for an online brokerage account and get access to different stock markets from around the world.

Online trading accounts have taken out the middle person when it comes to placing a trade.

As a result the fees you pay as commissions are much less, sometimes only $10.00 per trade depending on your choice of broker however you are giving up any advice your broker may have given you.

Online access to stock markets has also allowed investors the take advantage of all possible market opportunities because the time it takes to place a trade has reduced allowing you to grab an opportunity that may only exist for a couple of minutes, in the same time it would have taken you to pick up the phone to call your broker!

This is particularly important when trading small cap shares due to lower liquidity of these stocks and as a result when they move, they can move very quickly!

It is very easy to get yourself set up with a trading account, just fill out the application forms and send them off, and as soon as your account is funded you can start investing.

Be cautious though, just because it is easy to get access to the markets quickly, it is difficult to make money without first doing some research .

Always make sure you have researched what it is your are going to invest your money in first and that you understand it entirely.

Many brokerage houses allow you to practice first by setting you up with a paper money account before using your real money to invest but be careful as you can find your emotions kick in much more as soon as you start using your own money.

Carry on with your paper money account until you are assured in what you are doing then move onto using real money.

Online trading also gives you the tools to act quickly and accurately complete technical analysis of the stocks you are looking to buy by looking over the historical charts. Investors will scrutinize the price charts in order to try and decide which direction the stock price will move in the future.

The two main forces that dictate stock market prices are greed and fear and technical analysis tries to predict which one will win over a specified time frame. If you want to learn more about technical analysis then you can find plenty of information available on the web and in books to help you out.