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Investing in Penny stocks
Investing in penny stocks can be a great way to start out if you are learning as you do not need a lot of start up capital however it is important that you only invest what you can afford to lose.
Determine Your Risk Profile
Before starting to invest in penny stocks you need to decide if they are right for you. This decision is based on your own assessment of your risk profile.
If you feel you have the capacity to be able to deal with great risk and in fact you thrive in this sort of environment then penny stock investing is for you.
However if you have little spare money and are in a difficult financial position then you are probably better off investing your money in more established stocks.
Again on the other hand if you have plenty of money but you don’t like taking great risks then it is also best to avoid penny stocks.
So you’ve decided to invest in penny stocks then you need to do some research in order to find suitable shares to buy.
You will need to look at a number of factors when considering which company to invest in. You will need to investigate the reputation of the company and its management, past history of the company including company financials, profit and revenue streams.
This is referred to as fundamental analysis which is used to determine a company’s intrinsic value.
The actual price that a company is trading at is a reflection of a combination of market factors at that time but your research should identify what the company is actually worth.
If you can find companies that have good intrinsic value then you can greatly minimise the risk of losing your money.
One thing you may be looking for by coming to this site is help on how to choose which penny stocks to buy and I recommend this as a good starting point:
It is a fantastic site and can help you get started to ensure a maximum return on your money when penny stock investing.
Anyway back to investing in penny stocks...
It is very important in particular when investing in penny stocks to diversify your investments. That is not to put all "your eggs in one basket" even if you think you have solid information that you think the price of the share will rise i.e. you know an announcement is due shortly that you think will be favourable to the share price.
Things often do not turn out to plan and you could risk losing all your money on one investment.
Penny stocks often trade infrequently and can be quite illiquid making them difficult to sell particularly if you are trying to sell a large quantity quickly.
It is this lack of liquidity that makes penny stocks volatile which is associated with the greater risk.
Therefore if short term liquidity is going to be a problem then maybe penny stock investing is not for you as it is much easier to buy and sell stocks that are traded on the more well known stock exchanges.
To finish up penny stock investing does carry with it greater risks than other conventional stocks. If you ensure that you do your due diligence and avoid over exposure to any one stock you can make a good profit from penny stocks.