Penny stocks refer to the scrips in the stock market with a value below a dollar as per share cost. However, it is defined differently in US and UK equity trading markets. Being traded in massive amounts, these stocks are highly volatile. They are traded in huge volumes at a time due to their immense reward potential. One can earn huge profits by investing a small amount in these stocks, but the amount of risk involved is also too high. The movement of these scrips can be in any direction. It can easily make your hundreds into thousands and vice-versa. Hence, one needs to be very careful while trading these stocks.

Perceiving rapid growth potential, several inexperienced traders get lured to these low-priced stocks and incur a huge loss. Their portfolio reduces to half and sometimes even more than that. So the new investors must consider the risks involved with penny stocks. These stocks involve huge risks due to restricted liquidity, frauds and lack of financial information. Sudden and unauthenticated reports bring immense volatility in these stocks and make their prices move upwards or downwards with great percentage. Additionally, the trend of prices i.e. dips and spikes, possibly takes place in a very short span of time which could be a day, or an hour.

Mulling over the points discussed above, the main question that arises in investors mind is how to make money trading penny stocks. Well, it is only possible if the investors pay attention to a few things. They must research about the financial report of the company, its PE ratio, order book and its competitors. They must analyze each company on the grounds of the past records, price charts, support and resistance levels and all other indicators. Since these stocks are traded on traditional trading platforms and brokers, make sure you check on the broker’s or transaction fee. If the fee per trade is too high, it will eat up the major part of your profit because you would be trading large volumes to make handsome profit. Trading penny stocks with low volumes is not worth the risk taken.

If you are a new investor, you can seek assistance of a penny stock guide. Go through good penny stock newsletters on regular basis and hire an adviser to manage and monitor your portfolio. He can advice you which penny stock to buy and sell and at what price, actually assisting you trading hot penny stocks to fetch good profits. While investing your money in penny stocks never go just by the hope that prices will increase in the long time. Most of them do not hold the trend for an extended period. You need to invest keeping a short term in mind.

So invest your money wisely. Do not buy penny stocks under pressure. Analyze the volume and other indicators before investing. For more information browse This user friendly site contains all information on penny stocks beginning form the definition to penny stock guide.

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