Reducing The Risks Of Investing In Penny Stocks

You’re no stranger to the claims that enormous fortunes are there for the taking in the penny stock market. Your curiosity has been piqued, and you are going to take the plunge. But you’re not so new to investing that you think you can simply buy a few stocks, sit back any wait for them to double in price, and take your profits to the bank. You know there has to be more to it than that, and you are right.

The Things You Should Know

The first question you ask before venturing into the penny stock arena should be directed at yourself. Do you have the temperament, knowledge, and resources to let you start investing penny stocks without doing serious damage to your financial future? Every profit one person makes investing in the penny is someone else’s loss. You need to do what you can to make sure it isn’t yours.

Decide before getting started exactly how much money you are willing to risk investing in penny stocks, and limit yourself to that amount, and not a penny more. That way, even if the worst happens, you may be poorer, but you won’t be destitute.

Exactly how familiar are you with the way the penny stock market works? You will only go as far as your knowledge carries you. So before investing in penny stocks, learn how they are different from the stocks of Fortune 500 companies.

Also, before you begin investing in penny stocks of different companies, learn about the management of the companies and the industries they are in. If the industry is in a sector which is out of favor, you may have to wait a long time to see a profit. And investing in penny stocks should never be a long-term investment.

Do You Have The Time To Trade?

If you’re thinking you can start investing in penny stocks and then put your portfolio on autopilot, forget it. Long-term, blue chip investments are far more stable than penny stocks, and can be left to the market forces for months or even years at a time. Investing in penny stocks means that you have to monitor your holdings from minute to minute, and if you don’t have the time to do it, you’ll have to try and find a broker who can. The catch is that most of the respected brokerages charge significant commission for trading penny stocks, and will cut into your profits or increase your losses.

Learn to be patient. Don’t think that you have to put you money to work investing in penny stocks 24/7. Give yourself time to learn how to recognize the signs that a penny stock is ready to take off, and be patient until one comes along. And diversify. Don’t ever put all you money in a single stock, no matter how sure you are.

For those who take the time to learn the basics, investing in penny stocks can be a profitable addition to their larger portfolios. But it should never be more than that.