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How to Invest in Penny Stocks: The Top Trading Tips to Know

Penny stocks are one of the most accessible ways to invest your money. Since the stocks that you're putting money into are less than a dollar, you have the potential to greatly increase your money in the long term.

Of course, trading penny stocks is not a sure thing. While some penny stocks can skyrocket, they can also fail to gain any traction at all and go bankrupt, losing you all of your money.

Always keep in mind that penny stocks are a high-risk and very volatile financial vehicle, and are not best used for investment. Instead, focus on short term trading to turn a profit, and never put in more money than you can afford to lose. 

Keep reading for a few tips on how to invest in penny stocks!

Stick to High-Quality Exchanges

While penny stocks are inherently more risky than traditional established stocks, there are still ways you can reduce the risk you're exposed to. You never want to put money into a lower-tier exchange. 

Most large exchanges have penny stock or venture associated exchanges. For example, the Over-the-Counter Bulletin Board is owned by the NASDAQ. These exchanges have certain filing requirements before companies can be listed - which means you have more information to base your investment on, like balance sheets and quarterly reports. 

Set Stop-Loss Orders

Another great way to reduce the risk that you expose yourself to when investing in penny stocks, or regular stocks for that matter, is to set a stop-loss when you buy. These orders will execute automatically if the value of your stock dips to a certain point, capping the amount you can lose. 

Since penny stocks are so volatile and trading even a small volume can cause a sudden spike or drop, stop-loss orders are an effective risk management strategy. 

Use Limit Orders

On the flip side, always use limit orders when buying penny stocks. Limit orders let you set the maximum price you are willing to pay for a stock, as opposed to a market buy, which claims whatever rate is available. 

Again, since penny stocks can spike suddenly, simply putting in a market order can cause the stock price to increase. A limit order ensures that you are always aware of exactly how much you are spending on your order, and how many shares you will receive.

Sell Quickly

The last piece of advice that you should take to heart regarding investing in penny stocks is to sell quickly once you've realized a profit. The volatility of penny stocks means that long-term gains are few and far between. Getting in and out quickly can turn your initial investment into a nice nest egg, which you can then continue to invest or flip into more stable investments. 

Learn How to Invest in Penny Stocks

Penny stocks are just like every other investment: doing your due diligence about any specific company you are interested in investing in is essential. Because penny stocks are lesser-known corporations, there is simply inherently more risk in putting your money into them. Never invest more than you can afford, and don't chase sky-high returns when you've already made money. 

Want more information about how to invest in penny stocks, or just investing in general? Check out the rest of our blog for more informative guides! 


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