Trading Penny Stocks

A few years ago I started trading forex (currency markets) while I was working a day job. Because of the available leverage involved in trading forex, it was something where you could either make money fast or be on the other end of the trade. To make a long story short, I quickly found that the stress of trading forex was not for me. If you have the funds available, you can trade individual stocks or mutual funds but unless the market is volatile (and again if you have the money), you can trade or watch your trades all year long for a 10% gain.

So, I took all of my energy and started trading penny stocks. Penny stocks are thought by some to be stocks that trade under $5 per share but I normally trade stocks well below $1. Yes, you can find stocks selling for .0001 as well. Many of these stocks will be sold on the pink sheets or OTCBB (over the counter bulletin board). You first need to deposit money in a brokerage firm. There are many online brokerages that allow you to buy and sell penny stocks but you need to find one that will only charge $5 or so per trade. You don't want to be buying $50 worth of stock if you are paying $10 to buy the stock and then $10 to sell the stock.

There are many websites that you can use to research a particular penny stock. Pinksheets.com is a great place to start. Some questions that you may want to consider before investing your money in a penny stock.

Is the company run by a single person or do they have employees?
How long have they been in business?
Do they make widgets or are they providing a product or service that you can see will be in great demand?

Learn how to read charts. If the companies stock price has been on a downward trend, sometimes that downward trend never stops. Is the company currently making money or losing money and are they keeping up to date with financial statements?

On a personal level, in the past year I was trading penny stocks and one stock in particular tripled in value over a course of just a couple of days. Yes, you can make or lose money fast when trading penny stocks. Another penny stock that I owned (I thought it was in a great niche) just continued to drop in stock price but I didn't want to let it go because I thought it would turn around. Lesson learned, setup a stop loss and no matter how attractive a stock may be, don't follow your heart but instead, follow the charts and numbers.

Everything from wind power to sports art and In Vitro Fertilization fills the landscape of penny stocks. Whereas stocks traded on the NYSE tend to follow the direction of the DOW, penny stocks follow both news and trade volatility. Market makers can drive the price of a penny stock through the roof and in the same day take it down below where it started. Do your research before ever trading penny stocks, continue to educate yourself, and soon you will be watching your trading account and bank account grow.