Should i play penny stocks

If we can't persuade you to not invest in penny stocks, then you should at least follow these basic precautions to protect your portfolio:.

Determine the maximum dollar amount that you're willing to lose. Figure out how much money you can afford to lose and then limit yourself to investing that amount. That way, if your investment goes under -- as many investments in penny stocks do -- then you won't be in real financial trouble. Don't pay commissions if you can avoid them. Make sure that the brokerage firm you use doesn't charge trading commissions.

Many brokers have gone commission-free on stock trades but with a catch -- commissions or special fees are still assessed by some brokers for stocks with share prices below a certain level. Get a second opinion. Be sure to conduct independent research on the penny stock companies that interest you.

Too often investors rely solely on information from the company itself or from stock promoters, leaving them prey to fraudulent schemes. If you can't actually find any information from third-party sources, that by itself is a warning sign that a pump-and-dump scheme may be occurring. Be realistic with your expectations. Finally, understand that almost no penny stocks make money over the long term.

Most of the rare profits that penny stock traders generate arise from short-term moves that are based on emotion rather than the company's stock or business fundamentals. Penny stocks represent a volatile and risky part of the stock market, and many investors have suffered big losses trying to invest in them. With so many well-established companies available to own, there's little reason to settle for the highly risky companies that issue penny stocks.

It's impressive the way this supercharged stock is able to mint millionaires. The platform's young traders do tend to favor trendy stocks. But they also love a few solid blue chips that investors may want to buy now and hold for a long time. The popular streaming service turns 2 on Friday, and the media giant is celebrating up and down its ecosystem. Strong user growth and booming ad sales are fueling the interactive entertainment company's expansion. Investing Best Accounts.

Stock Market Basics. Stock Market. Why would major, international publicly traded companies rub shoulders with firms that issue highly speculative penny stocks? The reason has to do with cost and convenience. And they must prepare two sets of reports for all financial disclosures — one to conform with international accounting standards, and another that follows the generally accepted accounting principles GAAP used in the U.

Companies trading OTC avoid the burden and expense associated with such compliance. In sum, the OTC market can give foreign firms cheaper and easier access to the vast pool of U. The bottom line is that with the exception of large, established foreign firms, OTC stocks come with too many risks. And even legitimate tiny companies can fail virtually overnight.

The dangers lurking in OTC stocks far outweigh the vanishingly small potential for rewards. Skip to header Skip to main content Skip to footer. Home Scams. The Best Online Brokers, Why make it any easier? Scams Becoming an Investor investing bonds. Read more: Stock touts prey on investors' inflation fears.

Penny stocks and their promoters also tend to stay one step ahead of securities regulators, though just last month the Securities and Exchange Commission charged a Florida-based firm, First Resource Group LLC, with penny-stock manipulation. Read more: Simple rule: Don't buy a penny stock.

Even with these clear dangers, some people insist on trading the pennies. Timothy Sykes, a penny-stock expert who trades both long and short, says you must not believe the penny-stock stories that are touted in emails and on social media websites. Instead, Sykes says, focus on the profitable penny stocks with solid earnings growth and which are making week highs. Penny stocks are sold more than bought — mostly via tips that come your way in emails and newsletters. There is nothing wrong with wanting exposure, but almost all penny newsletters make false promises about their crappy companies.

Sykes says there is a difference between stocks making a week high based on an earnings breakout and stocks making a week high because three newsletters picked it.

Reading the disclaimers at the bottom of the email or newsletter, which the SEC requires them to do, will usually reveal a conflict of interest. Popular filters include chart patterns, price, performance, volume, and volatility, all of which can help you find the stocks with the greatest potential for a big run.

Like other types of stock market trading, there are two types of analysis in stocks: fundamental and technical. Fundamental analysis uses information about the company itself, such as management, debts, contracts, lawsuits, and revenues, while technical analysis uses patterns on a trading chart. Fundamental analysis is the preferred method of most traders, though a combination of both analyses can prove more beneficial than using one over the other.

Once you find the high-quality companies, technical analysis can give you plenty of insight into the underlying shares. The Relative Strength Index RSI is a momentum oscillator that measures the speed and change of price movements on a scale of zero to When it comes to technical analysis indicators, this is one of the most reliable indicators for penny stocks.

Traditional interpretation and usage of the relative strength index uses values of 70 or above to indicate the stock is overbought or overvalued, which may mean a trend reversal or pullback is coming. Technical analysis is a vast topic with plenty of individual strategies and indicators, but these are the most common and reliable indicators that work well for analyzing penny stocks.

Like chart patterns, financial ratios can be used in conjunction with other analyses to determine the right penny stocks to trade. Do penny stocks really make money? Yes, but they can also lose a lot of money. Penny stocks are a risky investment, but there are some ways to lower the risk and put yourself in a position for money-making penny stock trading. However, if you can tolerate a little risk and think quickly on your feet, penny stock trading can be a great source of income with the potential for massive gains.

Now that you know a little about how to make money investing in penny stocks, you can educate yourself even more to become an expert. Top ads. We have updated our Term of Service.