You have likely considered trading stocks as a way to generate revenue and grow your investment worth.
When most of us consider stock trading, we mistakenly think that the best shares to focus on are highly-priced and traded on the major stock exchanges.
But did you know that you are most likely to realize more returns by trading stocks that are valued less than a dollar, otherwise known as penny stocks?
Penny stocks, especially those in the US, are not traded on the exchanges. They are instead traded over the counter (OTC) through the facilitation of stockbrokers.
Having stocks valued under a dollar treated differently in the financial market is one of the first actions of the Security Exchange Commission (SEC) after its creation in the early 1930s.
Many day traders have decided to focus on penny stocks and learn everything they can on how to trade them. In their inherent nature, they find opportunities that cannot be found in major stocks.
But how exactly is one likely to make more profits with penny stocks than with Amazon or Google stocks?
The secret in lies the seemingly small price movements.
For example, a penny stock price moving from $0.025 to $0.050 within a day happens all the time. Such a movement doesn’t seem like much until you realize it is 100%, rare with major stocks.
As you probably noticed, to realize significant returns, you should trade in large volumes.
The other secret to making money with penny stocks is developing a viable watch list. This might seem a difficult task because not much is known about most of these companies.
One way to do it is to research industries and identify those that seem to have a high growth potential either because of new technological trends.
For example, the electric car industry seems to be growing into the foreseeable future. Therefore any startup or small company building technology to, for instance, lengthen the life of batteries or make them more efficient in one way or another has high chances of growing.
You can develop a list from such an industry and then perform technical and fundamental analysis for each of the penny stocks.
It is important to point out that there are risks involved in trading penny stocks. As easy as it is to realize huge returns, you could also lose your capital.
And given that a lot is not known about most penny stocks and their prices are so sensitive to news and actions of the investors and management, there is always a high likelihood of manipulation.
However, if you educate yourself about the process of identifying penny stocks with potential, how to predict their possible future price movements, and how to place orders, you could turn this into a viable way to grow your worth.
Fortunately, most of these are things you can easily learn online.