Penny Stocks For The Small Trader: Part 2
The capitalization of a penny stock company is lower than its brother with a higher volume of trading. Therefore they are excellent takeover targets for bigger companies in the same field.
At the same time, many smaller penny stock companies merge with another small penny stock company as a way to increase sales, revenues and in a bid to compete with or survive against bigger companies.
In these cases the share price will benefit if a company is being taken over. However if they are merging with another small company, the share price will depend on the situation of the merge. It could either be beneficial to shareholders or detrimental.
If a penny stock company is looking to break into a market that already has a driving force, they could run into trouble. Penny stocks have too much debt, no revenues or not so pretty balance sheets. Most investors ignore the fundamentals because there is great potential in the shares if the company’s product finally becomes a hit.
The problem with penny stocks is they can often spike or drop due to the slightest provocation. Part of the process to understand penny stocks is to and understand which driving factors are accurately price into shares.
This gives you an idea on how much the shares are actually worth. Sometimes they are underpriced giving the investor the opportunity to purchase below actual worth and making money on their investment before the market even opens.
There are many reasons to get involve into penny stocks. Sometimes new investors simply want to learn the basics of buying and selling stocks. In this case penny stocks provide the opportunity to learn the market and at the same time maybe earn them more investing money.
On the other hand, there are seasoned investors who trade penny stocks simply to play with some risk money. Maybe you know of a company who has a great product and just simply want to get in on the ground floor before the business takes off. Any of these are good reasons to trade with penny stocks.
You may be asking yourself, “Are penny stocks right for me though?” Before you decide to invest in penny stocks you may want to consider a few things:
1) What is your risk tolerance? How much money are you willing to risk to learn about these volatile but fun stocks?
2) What is your financial and investment position? If you have a lump sum of money saved and are simply looking for a way of increasing it, penny stocks may be for you. However, if you cannot afford to lose any of your savings, you should think about a long term venture into another type of stock.
3) How aggressive are your trading goals? If this is your first experience with stocks of any kind, you want to try penny stocks because they are short term and can increase your investment in a short period of time.
4) What are your expectations on your return? If you have unrealistic expectations, you probably should not play the stock market at all. If you are looking to increase a small investment and regroup into another stock after just a few weeks, then penny stocks are right for you.
5) Finally, what is your investment experience? For the inexperienced trader it is best to consult a broker who can give you insight into all of the stocks the market has to offer and guide you through your first trading sessions.
There is no rush to get started trading in the stock market until you fully understand what you want to do and how to do it. Make sure you familiarize yourself with trading terminology and concepts. Decide how you want to go about researching, monitoring and trading your shares. This can be over the phone, online or in person.
In order to truly know what lies ahead for penny stocks, you must have some idea of their past history and results. Going forward before looking back can doom you to mistakes that have been made numerous times before by others. There will be differences in the coming years that will not repeat prior histories.
At the same time, many smaller penny stock companies merge with another small penny stock company as a way to increase sales, revenues and in a bid to compete with or survive against bigger companies.
In these cases the share price will benefit if a company is being taken over. However if they are merging with another small company, the share price will depend on the situation of the merge. It could either be beneficial to shareholders or detrimental.
If a penny stock company is looking to break into a market that already has a driving force, they could run into trouble. Penny stocks have too much debt, no revenues or not so pretty balance sheets. Most investors ignore the fundamentals because there is great potential in the shares if the company’s product finally becomes a hit.
The problem with penny stocks is they can often spike or drop due to the slightest provocation. Part of the process to understand penny stocks is to and understand which driving factors are accurately price into shares.
This gives you an idea on how much the shares are actually worth. Sometimes they are underpriced giving the investor the opportunity to purchase below actual worth and making money on their investment before the market even opens.
There are many reasons to get involve into penny stocks. Sometimes new investors simply want to learn the basics of buying and selling stocks. In this case penny stocks provide the opportunity to learn the market and at the same time maybe earn them more investing money.
On the other hand, there are seasoned investors who trade penny stocks simply to play with some risk money. Maybe you know of a company who has a great product and just simply want to get in on the ground floor before the business takes off. Any of these are good reasons to trade with penny stocks.
You may be asking yourself, “Are penny stocks right for me though?” Before you decide to invest in penny stocks you may want to consider a few things:
1) What is your risk tolerance? How much money are you willing to risk to learn about these volatile but fun stocks?
2) What is your financial and investment position? If you have a lump sum of money saved and are simply looking for a way of increasing it, penny stocks may be for you. However, if you cannot afford to lose any of your savings, you should think about a long term venture into another type of stock.
3) How aggressive are your trading goals? If this is your first experience with stocks of any kind, you want to try penny stocks because they are short term and can increase your investment in a short period of time.
4) What are your expectations on your return? If you have unrealistic expectations, you probably should not play the stock market at all. If you are looking to increase a small investment and regroup into another stock after just a few weeks, then penny stocks are right for you.
5) Finally, what is your investment experience? For the inexperienced trader it is best to consult a broker who can give you insight into all of the stocks the market has to offer and guide you through your first trading sessions.
There is no rush to get started trading in the stock market until you fully understand what you want to do and how to do it. Make sure you familiarize yourself with trading terminology and concepts. Decide how you want to go about researching, monitoring and trading your shares. This can be over the phone, online or in person.
In order to truly know what lies ahead for penny stocks, you must have some idea of their past history and results. Going forward before looking back can doom you to mistakes that have been made numerous times before by others. There will be differences in the coming years that will not repeat prior histories.