If you are looking for a way to generate revenue, trading stocks is one option you may consider. For even better results, you may consider narrowing it down to trading penny stocks, which are shares that trade below a dollar.
You might be wondering what is so special about penny stocks.
Indeed, they are just stocks like others traded in the financial markets. In addition to trading under a dollar, they are only accessible and tradable over the counter (OTC). However, what should interest you as an investor is a potential they possess that the other stocks do not.
Of course, not every penny stock presents an opportunity to make money. It is important to identify or develop a good watch list. For inspiration, watch these penny stocks by Timothy Sykes, one of the most successful penny stock traders out there.
Now, what does penny stocks have that you cannot find in the other stocks?
Penny stocks’ potential can be found in its seemingly small price movements that translate to substantial percentage shifts. It is quite normal and indeed an everyday occurrence for a penny stock price to move by even over 100% in a day.
For example, a penny stock can start the day at $0.025 and end it at $0.050. That might seem insignificant, but everything changes when you turn the price movement into a percentage and consider trading huge volumes of penny stocks.
How to make money with penny stocks
Of course, you cannot wake up today, start penny stock trading, and expect to be successful at it. You need to go through a process and take several critical steps.
The following are some of the most important things you need to do to succeed at trading penny stocks.
Learn critical elements of penny stock trading
Education has to be the foundation for you to achieve success in trading penny stocks. Without the necessary knowledge and skills, you will be throwing money at the assets and hoping something works in your favor.
In particular, you need to learn how to do fundamental and technical analysis for specific stocks that you identify and target. Of course, you also need to learn how to use and leverage the different tools for this kind of activity.
Learn how to identify viable penny stocks
You must put effort into developing a watch list and identifying opportunities when they arise. One way to identify penny stocks with opportunities is to look at industries showing growth potential.
For example, the electric car industry is showing a lot of growth potential. The stocks of Tesla, the leading electric car manufacturer, are performing very well in the market. The value has grown from about $80 in January 2020 to about $600 in December 2020. Also, the company is building a lot of goodwill with its delivery to customers.
If you look closely, you can identify smaller companies that most people do not know about but are developing promising technologies and products that will serve the electric car industry. From there, you can create an up-and-coming watch list.
Identify a stockbroker to work with
It is easy to sign up and start working with a stockbroker. The difficult part, however, is finding one that is reliable and can meet your specific needs. You can, however, use the reviews and feedback from others who are already trading penny stocks.
You can get a lot of information about stockbrokers from penny stock trading community forums online or events you can find on platforms like Meetup.
Got for ECN
When you trade through an ECN (what is ECN), assessing the costs is easy — the size of the commission is known beforehand. The charge per trade constitutes your costs, so you know exactly how much each move is worth.
Besides, you can be sure the quotes displayed on your trading terminal reflect the real market situation. This provides enhanced transparency in comparison with the other model.
Work with large volumes
To make money from penny stock trading, you need to work with really huge volumes. For example, trading a thousand stocks in a day, each worth $0.02, will not do much for you.
However, if you multiply the number to tens or even hundreds of thousands, then you begin to see the possibility of a huge return on investment.
While these companies’ stocks are trading under a dollar, they can grow significantly once they put products in the market or get attention from the big players like Tesla.
So, can you make money trading penny stocks?
The potential to make money from trading penny stock exists. However, success depends on going through each of the five listed steps above with a lot of attention to detail.
It is important to point out that trading penny stocks is a high-risk endeavor. Of course, this is the nature of any economic activity that promises high returns on investment.
You need to overcome this risk by becoming better at understanding the ins and outs of the penny stocks you target, as well as the process of trading them.
You can make money trading penny stocks, but only if you take the time to learn and acquire the skills and knowledge you need.
You can learn this by doing courses, joining trading forums, and reading wide about the industries you intend to target.