One of the main reasons that people get involved with penny stocks is because they think they can get a 20% or higher return within a few days.
Whilst this is entirely possible, it’s important that we recognize how exactly you can make money with penny stocks and what your strategies might be to achieve a maximum return.
In short, the best way to make money quickly, ethically and legally through penny stocks is researching the best penny stocks to get involved with.
However, there’s a lot more to it than this. This guide will explain everything you need to know about penny stocks and how you can make money from them.
So, if you’re interested in this – read on to learn more!
What Are Penny Stocks?
Before we go on any further, it’s first important that we define exactly what penny stocks are. In short, penny stocks are any stock that trades under the value of $5 a share.
As a result of their nature, many people believe that these stocks would only be traded as an OTC stock (over the counter).
However, this isn’t the case – there are literally hundreds of penny stocks on the NASDAQ market and the New York Stock Exchange.
Penny Stocks And Companies
Typically, a penny stock is connected to a small company and lots of these companies may be considered as start up companies.
As a result of this, many investors would find it difficult to find stocks with high liquidity levels – which means the volume of trading is lower for a lot of penny stocks.
In turn, this means that it could be quite problematic trying to sell your stocks for a profit, especially if investors struggle to find a price that actually reflects their market value.
This is a critical point to bear in mind before you get involved with penny stocks – especially if you’re thinking of making quick money.
The Flip Side
However, this isn’t always the case. Sometimes, penny stocks can become market leaders due to world events or through sheer good luck.
One example is Novovax (NVX) that shot through the roof from a $5 share value to $300 share value due to the coronavirus pandemic.
They were working on an influenza vaccine, but decided to quickly focus on a coronavirus vaccine instead, which led to mass investment.
It’s also important that we recognize that penny stocks can also include companies that have suffered serious beat downs due to the APE movement.
Gamestop and AMC are perfect examples of this movement. However, they are more exceptions than the norm.
Making Money With Penny Stocks
So, now it’s time we explored how you can make money with penny stocks as quickly as possible. We earlier mentioned ethics and legality, and we were referring to the avoidance of “pump and dump” strategies.
The best way to make money is through knowledge, tactics and strategy. Below, we will take you through some of the best ways to plan.
Finding The Right Penny Stocks
Of course, you’ll need to know what the right penny stocks are and how you would start trading them. Here are the best tips for this.
Check The Substantial Assets
Companies that have real and tangible assets will likely have drawn up a proper and solid business plan. If you notice some stocks absolutely skyrocketing – you need to check for their assets.
If a company has little to no assets, they could potentially be in significant debt and may be trying to pull a “fly by night” scheme.
Always check out the company for the public information. A reputable company will have all of its information in the public domain.
If it does not, this should be a red flag to any novice investor. Remember, companies should have a business plan inclusive of its corporate strategy and growth plan.
Beware Of Speculation And Outrageous Claims
If you see a company making a very extreme projection, you should probably beware of this. How many times have you seen large cap companies claiming that they expect a revenue increase of 50,000% in their next quarter?
In reality, if it sounds too good to be true – it probably is. However, as a penny stock trader, you should still keep an eye on them.
To make money in the quickest way, you want to increase your chances with stocks with a high chance of making big movements.
So, here’s how you can increase your chances of making money with penny stocks.
Keep An Eye On Penny Stock News
Having a lot of knowledge about what is going on with penny stocks will play a significant role in your strategy and can affect your decisions.
Mosty, stocks which have a higher short interest will move fast which makes it a volatile environment.
What we are trying to achieve here is a situation where others are trying to purchase stock back to return their loans to their broker due to shorting.
This in turn causes a huge price increase which is fantastic for penny stock traders! Not so great for the investors though. Contrary to what many believe, shorting is not a scam – it’s a strategy.
If you’re making a return of 20% or higher in a matter of days, it’s critical that you sell as quickly as you can.
The penny stock market is very volatile and full of people who commit some untoward tactics, which could leave traders high and dry. Make sure you are not one of them!
The Bottom Line
It’s possible to make money relatively quickly with penny stocks, but you shouldn’t expect to become a millionaire overnight – unless you’ve hit some serious luck!
We hope this guide has been helpful!