Penny Stock Investing and Trading

Penny Stock Investing and Trading

Penny Stock Investing and Trading
By: Ron Kaye

If you ask anyone in the finance world what they think about investing or trading penny stocks, the answer that you will probably get will be: "Don't do it. You will lose your money since 90% of penny stock companies are scams. penny stock companies just want to sell shares and are not interested in developing their businesses." The truth is that investing or trading penny stocks is a very risky business. So here is the most important tip about penny stocks: Invest only money that you can afford to lose.

If penny stocks are so risky then, why do people invest in or trade them?

The answer is because you can make a lot of money in a short time if you know what you are doing.

If you are still reading and have decided that you want to trade penny stocks, you need the right tools and good advice to help you survive and even win some money.

Step # 1 - Finding the Right Penny Stock to Buy

To discover the right one stock, you will have to do some investigation, or Due Diligence. There are a lot of websites that will help you with your DD and you can find a list of useful ones at www.stocks-reporter.com.

The following points will guide you in learning important information about a company in which you are interested in investing:

1. Share structure: AS (Shares Authorized) and OS (Outstanding Stock and Float)

2. Transfer agent transparency

3. SEC filing

4. Financial track record

5. Competitive position in its industry

6. Business model

7. Earnings power

8. Valuation or the potential value of the company.

For example, when looking into share structure what you want to see is that there is no dilution. A good sign is when the company has maximized the OS and is close to AS. Watching Level 2 will also give you good indication if there is any dilution from the company. A good strategy is to follow insiders who know the company better than anyone else.

Step # 2 - Deciding When to Buy