If you’ve never invested in the stock market before, but you’re keen to get started, a natural first step for most people will be to look at the penny stock market. Penny stocks are very cheap, and although they’re very volatile, as long as you don’t invest too much too fast, they can be a good way to build your knowledge of the investment world. With these, you can invest in shares for less than $1 a piece, which means that you can start investing with nothing but $10 and see what happens from there. With so many cheap options available, it’s easy to see why people get hooked and end up investing in every “hot pick” they see on a forum for penny stocks. However, if you want to avoid being yet another person to fall victim to a scam, it’s important to think about how you’re going to safely choose your first investments.
Defining Before You Start
Before you can pick the right one, you need to be able to separate your options from the other solutions on the market. The Securities and Exchange Commission refers to a penny stock as any that trades for less than $5 a share. However, there are some traders out there who say that a real penny stock should not trade for more than $1 a share. The definition can, therefore, differ depending on who you ask.
One thing that remains the same among all definitions, is that penny stocks are often complex, and difficult to learn much about. There’s usually very little financial history around a company that’s selling penny stocks, which is one of the reasons why the price of shares is so low. Additionally, there is a chance that many of the penny stocks you find will trade outside of the major market exchanges. This is because most of the bigger exchanges have specific requirements for the kind of stocks that can be traded on them.
Making Your Decision
One of the first things you can do to reduce your chances of choosing the wrong penny stock makes sure that you always invest in those that appear on the major exchanges if you have the opportunity to do so. It’s less likely that you’ll be caught up in a scam this year, as the bigger trading exchanges are regulated. Stay away from dangerous exchanges that might trick you into making investment decisions that are bad for your financial health.
Another thing to keep in mind is that you should never invest in a penny stock just because someone else tells you to. Instead, screen through your penny stock options using a screening tool that allows you to adjust your options according to things like your investment strategy and your risk tolerance. Don’t forget to do your research into the stock that you’re thinking of buying too. The more information you have about a company, the easier it will be to decide whether it’s worth making an investment in the organization or not.
