People often dream of becoming independently wealthy and being able to retire early. However, very few people realize this is more achievable than they think. And even fewer of those who do know, believe they themselves can achieve this.
This usually comes because almost every discussion around the topic of financial independence involves investments. And most people don’t believe they can afford to invest properly.
However, they also don’t usually realize there are cheap stocks trading at under $5 a share. Penny stocks. These penny stocks while filled with very high risk, they also have the potential for high reward.
Because of the incredible risk, it is important to know what to look for when buying penny stocks. Find out how to pick the winning penny stocks today!
First a quick overview and answer to the question, “what are penny stocks?” Penny stocks are companies whose stocks trade at below $5 a share. Typically, because these companies are going bankrupt or are folding.
The hope is that you can buy a lot of shares for a low price and the company will bounce back and the price of the shares will jump. The risk, of course, being that the company completely goes under and you lose all of your investment.
Because of the risk, most brokers won’t deal with penny stocks, leaving green investors to fall victim to scams. Which is why it is important to know what you are looking for when buying penny stocks.
Research the Company
Regardless of what kind of stock you are buying, you should always research the company before making any purchase. Some indicators that you should clearly avoid include not being able to find much information about the company and news releases.
News articles about the company will help you to learn what is happening with the company and be able to predict if the price will go up per share or not.
Price and Valuation
So, what are penny stocks prices and value?
When it comes to stocks value and price, investors often get the two confused. A common mistake is that the price per share is the indication of the worth of the stock. However, that isn’t necessarily the case.
An example is most investors see a share trading at $0.10 per share as being worth less than a stock that trades at $150 per share. But they often forget about outstanding shares.
If the first company has 5 million outstanding shares and the second company has 3,334 shares, which one is worth more. Most are inclined to say the second company still. However, they are about the same. The outstanding shares for both companies are worth $500,000.
Both companies are equal in this respect. Here is where the research into the two companies will help to determine which option is best for you.
Another important factor to consider when choosing penny stocks to buy is the volume. Volume refers to the number of shares traded for the day.
Stocks with a low volume usually mean there is little interest in the company. While a higher volume of shares moving throughout the day could indicate a strong interest in the company.
In either case, it is worth looking at the Google results about the company, the outstanding shares, and whether the company is profitable or not.
The benefit of trading when the volume is high is the increased chance of finding a buyer if and when you choose to sell your stock. Which, since we’re dealing with penny stocks, is exactly what you want to do.
Penny Stocks and You
Choosing to trade in penny stocks can come with its own risks and rewards. Both are quite high. Because of the high risk involved many brokers won’t trade in penny stocks.
Because of this, it is important to know what to look for when buying penny stocks. The lack of oversight often leads to newer investors falling victim to scams.
Always research the company before buying, pay more attention to outstanding shares than the price of each share, and volume when shopping around for penny stocks. Keeping these tips in mind and being wary of scammers will help you to become successful at trading penny stocks. And find your financial independence and early retirement.