Penny stocks are alluring to newbie traders because it doesn’t take much to invest and they have the potential to generate huge profits. That potential is always there, but the odds are against you if you don’t do your due diligence. Penny stock traders can make an excellent return on their investment by day trading penny stocks, but watch out for these scams.
What to Know First
Trading is may not be a topic of conversation among your family and friend circle, so you may be asking what is day trading? Day trading is when you buy and sell the same stock within the same trading period. The SEC allows three-day trades for accounts that have less than $25,000 available. A fourth trade means the account will be flagged as a pattern day trading account. For traders who don’t have $25,000 to establish a marginal account for day trading, the Robinhood app is a good starting place. It features protections that will stop you from making more than three-day trades in a five-day business period. These protections will prevent your account from being marked as a pattern day trader.
Ignore Penny Stock Success Stories
When you hear about all of these penny stock success stories online, understand that these people are promoting themselves as business gurus. Many people approach penny stock investment the same way as lotto investment, picking a company at random and purchasing tons of stock. That’s a quick way to lose all of your cash to seasoned sharks who can smell you coming. Focus instead on profitable penny stocks that have solid earnings growth and are reaching their 52-week highs. Don’t fall for the hype of anyone telling you a penny stock is worth it because they say so. It’s generally not.
Tips and Disclaimers for Penny Stocks Suck
The simple truth of penny stocks is that they are more often sold than they are bought. Free penny-stock newsletters are not giving you hot tips out of the goodness of their hearts, either. Many of these newsletters charge companies to feature their stocks on these lists to eager penny stock buyers. There’s no guarantee that any penny stock advertised in this way will guarantee big returns, despite what anyone advertises. Penny stock newsletters don’t have a vested interest in telling you the truth about the stocks they’re promoting because they were paid to promote them. Don’t bother with these lists at all.
If you do decide to invest in a penny stock because you think it will jump in price, get ready to sell quickly. You should be especially wary of any penny stock that is consistently rising, as it may be part of a pump and dump scheme that you don’t even know about. Finally, trust no one when it comes to discussing penny stocks. Even the company behind the stock should not be trusted in the world of penny stocks. They are doing everything they can to generate a higher stock price and many companies engage in scam practices for this purpose. Avoid any newsletters or promoters you see online as they are probably paid to tell you which penny stocks to buy.